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AN OUTLINE 



OF THE 



ELEMENTS OF ECONOMICS 



BY 



WILLIAM h: kiekhofer 

Professor of Economics, University of Wisconsin 



FOURTH REVISED EDITION 



<&!{» (BolUsiat* PrcBB 

GEORGE BANTA PUBLISHING COMPANY 

MENASHA. WIS. 

1921 



^^'\ 



.b 



^\ 



Copyright 1917, 1918, 1920 and 1921 by 
William H. Kiekhofer 



All Rights Reserved 



Published September 1917 

Second Edition September 1918 

Third Edition February 1920 

Fourth Edition September 1921 



g)CI.A630245 



NOV 12 1921 



i 



V9 



CONTENTS 

Page 

Plan of the Course 5 

Introduction 
Chapter 

I. The Nature and Importance of Economics 9 

Part I — The Economic Struggle 

II. The Wants of Man and Motives in Economic Behavior 12 

III. IndustriaUsm, the Modern System for the Satisfaction of 

Wants j4 

IV. The Struggle for Economic Opportunity and Power 15 

V. The Conflict of Interests 16 

VI. The EquaUzation of Bargaming Power 17 

VII. Government Control of the Economic Struggle 18 

Part II — Production 

VIII. The Nature of Production 19 

IX. Industrial Organization of Production 22 

X. Business Organization of Production 24 

XI. The Movement Toward Industrial Combination 30. 

Part III — Valuation and Distribution 

XII. Value and Price 32 

XIII. Monopoly and Monopoly Price 41 

XIV. The Wages of Labor 44 

XV. The Interest of Capital 48 

XVI. The Rent of Land 52 

XVII. The Profits of the Entrepreneur 57 

XVIII. The Distribution of Wealth Among People 60 

Part IV — Labor in Industry 

XIX. The Nature of Labor Organizations 61 

XX. Labor Union Policies 63 

XXI. Industrial Conflict 65 

XXII. Industrial Peace 67 

XXIII. Labor Legislation 69 

XXIV. Social Insurance and Unemployment 71 

XXV. Labor and Immigration 73 

Part V — Exchange 

XXVI. Money Exchange 74 

XXVII. Credit and Banking 78 

XXVIII. Foreign Exchange and International Trade 83 

XXIX. Price Index Numbers 86 

XXX. Price Changes 89 

XXXI. Economic Crises 91 

XXXII. Marketing 93 

XXXIII. Organized Speculation 94 

XXXIV. Insurance 97 

XXXV. Transportation 99 



Paht VI — Consumption 

XXXVI. The Natuie and Laws of Consumption 103 

XXXVII. Social Influence and Control Over Consumption 106 

XXXVIII. Saving and Investment 108 

Part VII — Public Finance 

XXXIX. The Sources of Public Revenue 109 

XL. Taxation Ill 

XLI. Public Expenditures 114 

Part VIII — Economic Policies 

XLII. National Economic Policies 110 

XLIII. The Pohcy of Government Control 118 

XLIV. International Economic Policies 120 

XLV. Distinctive Features and Assumptions of the Present 

Economic System 122 

XLVI. Socialism and Other Plans for Social Reconstruction 124 

Suggestions Concerning Topics 127 

Suggested Topics 129 

List of References 134 



Plan of the Course in the Elements of Economics at 
THE University of Wisconsin 



Methods of Instruction 

The course in the Elements of Economics extends through- 
out the year, carrying four credits per semester. The first semes- 
ter's work {Economics la) may be elected without the second 
{Economics lb), but students desiring a general survey of the whole 
field of economics are advised to take both Economics la and lb. 
An attempt is made, however, to give to students, whose prograriis 
do not permit them to elect more than one semester's work in the 
Elements as complete a course in Economics la as possible. The 
work of the first semester includes a portrayal of the economic 
struggle, production, valuation and distribution, and the problems 
connected with labor in industry— Parts I-IV of this Outline. 
The second semester's work includes exchange, consumption, 
public finance, economic policies and politics — Parts V-VIII of 
this Outline. Students may enter upon a continuous year's work 
with the opening of either the first or second semester. 

Five methods of instruction are used in the course: the lecture, 
the class discussion, the written exercise, collateral reading, and 
the personal conference. 

The Lecture. — In the two lectures per week some descrip- 
tive material will be presented, due to the division of labor be- 
tween the lecture and class discussion, but it will always be the 
main purpose of the lecture to explain, to correlate, to apply, 
and if possible to inspire. 

The Class Discussion. — The class will be divided into sections 
of approximately twenty students each for the purpose of discuss- 
ing the subject upon the basis of textbook study and collateral 
reading. The meeting of the section is not for the purpose of oral 
"quizzing" or examination, but for developing the subject by 
the method of question and answer. The class discussion aims at 
clarifying the subject for the student, and is a coordinate branch of 
instruction with the lecture. 

Written Exercises. — Exercises involving a review or applica- 
tion of economic principles previously presented and designed 



6 Elements op Economics 

particularly to develop the student's power of independent 
thinking will be assigned from time to time throughout the year. 
Students will be required to hand in to their instructors a written 
discussion of these exercises. Some of these exercises will be found 
at the close of the chapters of this Outline; othei-s will be prepared 
from time to time and given to students on mmieographed sheets. 

Exercises marked "R" are intended primarily to furnish a 
"review" of the subject as previously presented, but in the stu- 
dent's own way. Those marked with an "A" present some situa- 
tion calling for the "application" of economic principles. Those 
marked with a "D" are intended for brief "discussion" in class, 
as they involve questions that are a particular challenge to the 
thinking of students. 

A topic will be required of students during the second semester's 
work. The purpose of this topic, together with a list of suggested 
topics, is set forth on pages 000-000 of this Outline. 

Required and Collateral Reading. — The required reading in 
the course consists of Ely's Outlines of Economics and Clay's 
Economics for the General Reader, together with such other readings 
as may be assigned from time to time. The exact chapters and 
sections of each of these textbooks pertaining to any given subject 
will be found specified in the references given at the close of each 
of the chapters of this Outline. References are also made through- 
out to three books of readings compiled from a great variety of 
sources, namely, Marshall, Wright and Field's Materials for the 
Study of Elementary Econofnics, Hamilton's Current Econo7nic 
Problems, Marshall's Readings in Industrial Society. Some of the 
chapters of this Outline also cany references to a few other sources, 
but no attempt is made to list an extended bibliography. It is 
rather the idea to insert a few references w^hich are to constitute 
the student's first introduction to the subject, and having mastered 
these in their proper place in the course, to expect him to work 
independently. 

A considerable number of general reference works will be found 
on the reserved shelves of the reading room of the University 
Library. In addition to the two required textbooks students are 
encouraged to familiarize themselves with the literature of the 
subject. 

Personal Conference. — Each of the instructors, including the 
lecturer, will arrange hours each week for personal conferences 
with students in his office. The hours will be announced in the 
sections and in the student directory. It will be an excellent plan 



Plan of the Course 7 

for students to keep a card on which to note questions or topics 
arising in the reading, class discussions or lectures that they do not 
understand, and then to consult with their instructors concerning 
them. 

Textbooks 
Ely's Outlines of Economics, third revised edition (1916). 
Clay's Economics for the General Reader. 

Kiekhofer's Outline of the Elements of Economics, fourth revised 
edition (1921). 

Examinations 
There will be two examinations of one hour each and a number 
of short quizzes each semester in addition to the final examination. 
Notice of the examinations and quizzes will always be given in 
advance. 

Final Grade 
The final grade will be computed upon the basis o' the examina- 
tion grades and the class work, the class work grade including 
estimates of both the written and class discussion work. 

Purpose and Use of This Outline 
This topical outline of the elements of economics has been 
prepared for the purpose of furnishing unity to the course. The 
analysis here made will be developed in the lectures and class 
discussions, some topics being discussed only in the lectures, some 
only in the sections, and some in both. The organization of 
thought here suggested is tentative and will be varied whenever 
it can be improved, considering both the logic of the thought and 
the needs of beginning students. 

Reading references are given to three textbooks and to three 
books of readings. Throughout this Outline, Ely's Outlines of 
Economics is called reference (1); Carver's Principles of Political 
Economy, reference (2) ; Clay's Economics for the General Reader, 
reference (3); Marshall, Wright and Field's Materials for the 
Study of Elementary Economics, reference (4) ', Hamilton's Current 
Economic Problems, reference (5); Marshall's Readings in Indus- 
trial Society, reference (6). If, to illustrate, the student comes 
across this reference: (1) 132-133, it means that on pages 132- 
133 of Ely's Outlines of Economics the subject under consideration 
is treated. 

In preparing his work the student is advised first to read 
from beginning to end the references to his textbooks given at the 



8 Elements of Economics 

close of each chapter of this Outline, and then to go over the assign- 
ment topically with the aid of this Outline. If this is done the 
student will come to class prepared intelligently to listen to the 
lecture and to participate in the class discussion. 

Suggestions Concerning Note-taking 
Students will be expected to prepare fairly complete and well 
organized notes on the course. The purpose of this requirement 
is to help students better to understand and organize the subject 
of economics, and to stimulate them to work to the best advantage. 
It will ordinarily be best to follow the sequence of topics as pre- 
sented in this Outline, and to arrange notes under these headings, 
whether the notes be on lectures, class discussions, textbook or 
collateral reading. The student's notes should constitute a logi- 
cally arranged resume of the subject, and should be open to in- 
spection at any time. . 



Nature and Importance of Economics 



Introduction 



CHAPTER I— THE NATURE AND IMPORTANCE OF 
ECONOMICS 

I. The Nature OF Economics 

Economics and political economy are terms used inter- 
changeably to designate one of the social studies. Usage 
today favors the former term, as better designating the 
content of the study under consideration, for there are many 
aspects of economic study that are non-political. 

"Economics is the science which treats of those social 
phenomena that are due to the wealth-getting and wealth- 
using activities of man" (1) 4. 

1. Nature of social phenomena. 

2. Nature of wealth-getting. 

3. Nature of wealth-using. 

Economics is a study which concerns itself with the prob- 
lems of income and expenditure (2) 2. 

II. Branches of Economics (2) 2. 

1. Private economics. 

2. Political economics or public finance. 

3. Social economics. ^ 

III. Economics, A Social Science 

Whether economics is to be classified with the humanities 
or the sciences has been much discussed. 

1. Meaning of the term "humanities." 

2. Meaning of the term "science." 

A science is a body of knowledge dealing with phenomena 
having such constant relations that these relations can be 
expressed in generalizations known as laws. Physical 
science is based upon the postulates of the indestructi- 
bility of matter, the conservation of energy, and the 
uniformity of nature. Without these the physical 
sciences could not be exact; they would amount to 
nothing more than bodies of description. 



10 Elements op Economics 

3. Meaning of the term "law." 

A law in science is a statement of the cause and effect 
relationship between phenomena which always holds 
under given conditions. The laws of science do not 
grow, as does the common law; they are not made, as 
is statute law; they are natural, and so are merely dis- 
covered by man, e.g., Newton's law of universal gravita- 
tion. 

4. Distinctive nature of "economic laws." 

There is a certain uniformity of human nature, which 
makes social sciences possible, but there is no such invar- 
iability about it as there is about inanimate nature. 
Hence social laws, including economic laws, cannot have 
the exactness of the laws of physical science. Economic 
laws describe tendencies. 

"Every social or economic law is merely a forecast of the 
conduct of men, and its scientific value is measured by the 
number of cases in which it comes true." (8) 6. "A law of 
social science, or a social law, is a statement of social 
tendencies; that is, a statement that a certain course of 
action may be expected under certain conditions from the 
members of a social group." (7) 33 

5. Economics, a social science. 

To call economics a social science is to suggest its kinship 
with both the humanities and the sciences. Since the 
beginning and end of economic study is man, there is a 
large hmnanistic element and appeal in economics. In 
its method, however, of systematically searching for the 
causes of economic phenomena and reducing its conclu- 
sions to laws, economics is scientific. Like all social 
sciences, economics is an approximate and partly de- 
scriptive science; it is concerned not only with the inter- 
pretation but also with the improvement of human 
relations. 

IV. The Relation of Economics to Other Social Sciences. 
The social sciences all deal with men in their relations to 
each other. For every distinct relationship between men 
there is a distinct science. But there can never be any such 
sharp boundary Hne between the social sciences as between 
the physical sciences. 



Nature and Importance of Economics 11 

The relation of economics is particularly close to 

1. Sociology. Sociology is the most general of all the social 
sciences. It has the same relation to the special social 
sciences, like economics and poHtics, that biology has to 
botany and zoology. It concerns itself with the origin 
and development, the structures and functions, of all 
forms of human association. It is the study of men's liv- 
ing together. 

2. Pohtics, which treats of those social relations of man that 
concern him as a member of organized society, the state. 

3. Law, which comprises the regulations through which 
formal expression is given to the will of society. Usages 
and customs, which have come to be sanctioned prece- 
dents, constitute the common law. Rules and regula- 
tions enacted by legislative bodies constitute the statute 
law. 

4. Ethics, which treats of the rightness and wrongness of 
social relations. 

Mention should also be made of history, as a record of 
past events. Present economic phenomena cannot be under- 
stood without a knowledge of those past conditions that 
produced them. 

The student of economics will often find in the study of 
a given economic problem, such as the "trust" question, 
the closed shop, or a plan of taxation, that economic, social, 
political, legal, and ethical considerations are all involved. 

Provision for one's wants being fundamental to every 
other relationship of life, economics occupies a very impor- 
tant position in the family of the social sciences. 

V. The Importance of Economics 

1. Cultural importance. 

2. Professional importance. 

3. Citizenship importance 

References 
(1) Ely, R. T., Outlines of Economics, Ch. I. 
(3) Clay, Henry, Economics for the General Reader, Ch. I. 

(6) Marshall, L. C, Readings in Industrial Society, Sees. 103, 104. 

(7) Marshall, Alfred, Principles of Economics, Book I, Ch. III. 

(8) Gide, Charles, Political Economy, pp. 1-11. 



12 Elements of Economics 



Part I — The Economic Struggle 

CHAPTER II— THE WANTS OF MAN AND MOTIVES IN 
ECONOMIC BEHAVIOR 

I. The Development of Human Wants 

II. The Inadequacy of the "Economic Man" Explanation 
OF Human Behavior 

III. The Subjective Basis of Human Wants and Economic 
Behavior 

1. The instinctive self. 

a. The nature of instincts. 

b. The importance of instincts for the analj^sis of eco- 
nomic behavior. 

c. Some important instincts motivating economic be- 
havior. 

(1) Hunger and sex. 

(2) Parental instinct. 

(3) Pugnacity. 

(4) FUght. 

(5) Curiosity. 

(6) Constructiveness. 

(7) Acquisitiveness. 

(8) Gregariousness. 

(9) Self assertion and self abasement. 

2. The habitual self . 

3. The rational self. 

IV. The Objective Basis of Human Wants and Economic 
Behavior 

1. The influence of the physical environment. 

2. The influence of the social environment. 

V. The Problem of Socializing Economic Behavior 

References 

(1) Ely, R. T., Outlines of Economics, pp. 103-105, 133. 

(6) Marshall, L. C, Readings in Industrial Society, pp. 270-277. 



Wants of Man 13 

(7) Thorndike, E. L., The Original Nature of Man. 

(8) James, William, Principles of Psychology, Vol. II, Ch. XXIV. 

(9) Tead, Ordway, Instincts in Industry. 

(10) Ellwood, Charles, An Introduction to Social Psychology, 

Chs. Ill, IX. 

(11) McDougall, WiUiam, An Introduction to Social Psycholoav 

Chs. II, III, X-XII, XIV. 



14 Elements of Economics 



CHAPTER III— INDUSTRIALISM, THE MODERN SYS- 
TEM FOR THE SATISFACTION OF WANTS 

I. The Ever Changing Economic System 

II. Magnitude of the Economic and Political Changes 
OF the Industrial Period 

III. Distinctive Features of Modern Industrialism 

1. Substitution of power-driven machinery for man handled 
tools. 

2. Replacement of the home workshop with the factory. 

3. Establishment of specialized production for large, general 
markets in place of custom production for small, local 
markets. 

4. Large-scale use of capital. 

5. Substitution of group action for individual action. 

IV. The Evolution of Industrialism 

1. The self-sufficing household economy. 

a. The direct appropriation phase. 

b. The pastoral phase. 

c. The agricultural phase. 

2. The commercial or handicraft economy. 

a. The guild system. 

b. The domestic system. 

3. The industrial economy. 

V. Characteristic Attitudes Towards Modern Indus- 
trialism 

1. The attitude of economic conservatives. 

2. The attitude of economic radicals. 

3. The attitude of economic hberals. 

References 
(1) Ely, R. T., Outlines of Economics, Chapters III and IV. 
(6) Marshall, L. C, Readings in Industrial Society, Sees. 11, 12, 
17-47, 69, 75, 82-84. 



STRTJGQtE FOR ECONOMIC OPPORTUNITY AND PoWER 15 



CHAPTER IV— THE STRUGGLE FOR ECONOMIC 
OPPORTUNITY AND POWER 

I. Man's Struggle for a Living 

1. The universality of struggle due to the scarcity of goods. 

2. Distinction between the economic struggle and the 
struggle for existence. 

3. Value of the economic struggle. 

4. Forms of the struggle for economic opportunity. 

II. The Struggle for a Job 

1. The comparatively large number of people for whom the 
struggle for economic opportunity is a struggle for a job. 

2. The haunting fear of losing one's job. 

3. The conversion of the economic opportunity of jobs into 
economic power ov^r jobs through 

a. Collective bargaining. 

b. Closed shop. 

c. Property rights in jobs. 

The security of the job is not yet comparable to the 
security of investments. 

III. The Struggle for the Control of Natural Resources 

1. The quest for land, forests, water power, and minerals 
and the economic opportunities furnished by them. 

2. Property rights in natural resources a source of economic 
power. 

ly. The Struggle to Command Capital 

L Consequences of poverty in capital goods. 

2. Conditions for the accumulation of capital. 

3. Property rights in capital a source of economic power. 

4. Combinations of capital for the exercise of economic 
power. 

Reference 

(2) Carver, T. N., Pnnciples of Political Economy, Ch. IV. 



16 Elements of Economics 



CHAPTER V— THE CONFLICT OF INTERESTS 

I. The Inevitableness of the Conflict of Interests 

As long as economic scarcity exists a conflict of interests is 
inevitable. 

II. Forms of the Conflict of Interests 

1. The conflict of the interests of individuals. 

2. The conflict of the interests of groups. 

3. The conflict of the interests of classes. 

4. The conflict of the interests of nations. 

III. Industrial Conflict, the Most Disturbing Conflict of 
Our Time 

The most distinctive and disturbing conflict of our time, now 
that the menace of military autocracy has been turned back, 
is industrial conflict. 

IV. Conditions in Modern Industry Provoking Industrial 
Conflict 

Among the more important conditions in modern industry 
provoking various forms of industrial conflict are the follow- 
ing: 

1. Dissatisfaction with the job. 

a. It is monotonous and narrowing. 

b. It is impersonal. 

c. It is insecure. 

d. It lacks recognition 

2. Dissatisfaction with the rewards of the job. 

3. Dissatisfaction with lack of control over the job. 

Reference 
(2) Carver, T. N., Principles of Political Economy, Ch. Ill . 



Equalization of Bargaining Power 17 



CHAPTER VI— THE EQUALIZATION OF BARGAINING 

POWER 

In .the conflict of the interests of groups and classes, all sorts 
of inequalities appear. The clashing groups and conflicting 
classes do not always struggle on anything like equal terms. The 
groups strugghng at a disadvantage endeavor to improve their 
position. This improvement they seek through collective action 
and through the exercise of control by the government. 

I. Equalization of Opportunity Characteristic of De- 
mocracy 

II. Equalization of Bargaining Power, One Phase of the 
Equalization of Opportunity 

"Liberty of contract begins where there is equaUty of bar- 
gaining power." — Mr. Justice Holmes. 

III. Typical Forms of Inequality in Bargaining 

The economic bargaining situation presents various forms of 
inequality. There are such typical forms of inequality in 
bargaining as those 

1. Between consmiiers and producers. 

2. Between producers of food and raw materials, and mid- 
dlemen. 

3. Between employers and employees. 

IV. Means for Equalizing Bargaining Power 

1. Private collective action. 

2. Governmental action. 

Reference 
(7) Commons, J. R., Labor and Administration, Ch. XIV. 



18 Elements of Economics 



CHAPTER VII— GOVERNMENT CONTROL OF THE 
ECONOMIC STRUGGLE 

I. Grounds for the Decline of the Laissez-Faire Atti- 
tude Toward the Economic Struggle and for the 
Extension of Government Control 

1. Appearance of much social injustice. 

2. Decline of effective competition and growth of com- 
binations threatening to dominate economic and poUtical 
life. 

3. Growth of economic interdependence. 

II. Functions of the Government in Economic Struggle 

1. Legislative determination of procedure and limits. 

2. Executive and administrative control. 

3. Control by the courts. 

Reference 
(2) Carver, T. N., Principles of Political Economy, Ch. V. 



Nature of Production ly 



Part II — Production 
CHAPTER VIII— THE NATURE OF PRODUCTION 

I. The Nature of Production (4) 45-55 

Production consists in the creation of economic goods. 

A good is anything capable of satisfying a human want. 
A good has utihty. UtiHty is the power of the good, di- 
rectly or indirectly, to satisfy a human want. 

As to scarcity, goods may be classified as free and eco- 
nomic. Free goods are goods which at a given time and 
place, and without cost to anyone, exist in quantities 
sufficiently large to satisfy all wants for them. Economic 
goods are goods which at a given time and place cannot 
be obtained without cost in quantities sufficiently large to 
satisfy all wants for them 

Whatever and whoever increases the supply of economic 
goods is productive. 

Production takes two chief forms : 

1. The production of material goods or social wealth. 
Social wealth may be produced through the 

a. Creation of form utility. 

b. Creation of place utility. 

c. Creation of time utility. 

"Things are not fully 'produced' until they are in the 
form in which they are wanted, at the place at which 
they are wanted, and at the time when they are 
wanted" (1) 116. 

2. The rendition of direct personal services. 
Personal services are those want-satisfying human 
activities which require direct cooperation between 
the persons concerned in the satisfaction of the want. 

II. The Factors in Production 
1. Nature (4) 58-60. 

Nature, as a factor in production, includes all those gifts 
of nature which are used in the creation of economic 
goods. Frequently these natural resources are called 
"land" by economists. 



20 Elements of Economics 

2. Labor (4) 105-108. 

Whatever human effort helps in the creation of eco- 
nomic goods is productive labor. Not all human effort 
is productive l&bor, because not all of it is spent in the 
creation of economic goods. Much human effort is ex- 
erted for the direct satisfaction of wants. 

Whoever helps in the creation of economic goods, 
whether in the form of social wealth or personal services, 
is a producer. 

3. Social capital (4) 157-160. 

Social capital, as a factor in production, includes those 
products of man's past labor which are used in the 
further production of economic goods. Social capital is 
often called productive capital to distinguish it from 
capital which is merely acquisitive, i.e., only income 
yielding. (It should be noted that the term capital is 
used to convey at least two very, different meanings: 
capital as an instrument of 'production, which is the mean- 
ing in this chapter; and capital as wealth which yields 
its owner an income, which is the meaning in Chapter X.) 

a. Kinds of productive capital. 

(1) Fixed capital. 

(2) Circulating capital. 

b. Accumulation and formation of capital. 

4. Entrepreneur or enterpriser (6) 266-267. The entre- 
preneur in production is the person or persons who are 
responsible for the organization and direction of the 
factors in production, and who at the same time assume 
the risk of the success or failure of the enterprise as a 
whole. While the entrepreneur is responsible for the 
management of the enterprise, he ma}^ delegate the duties 
of active management to a paid manager. 

III. Functions in Production 

In any analysis of production it is more important to 
distinguish the functions -discharged, than it is to differen- 
tiate among land, labor, capital, and the entrepreneur as 
factors in production. The essential functions in modern 
production, regardless of the person or group of persons dis- 
charging them, and assuming available natural resources, 
are : 
1. Working. 



Nature of Production 21 

2. Waiting or Saving. 

3. Risk taking. 

4. Management. 

To stimulate the discharge of these socially necessary 
fmictions, various rewards are paid, such as wages, interest, 
and profits. 

References 

(1) Ely, R. T., Outlines of Economics, Ch. VIII, pp. 116-124. 

(2) Carver, T. N., Principles of Political Economy, Chs. VIII, 

IX, XIII. 

(3) Clay, Henry, Economics for the General Reader, Chs. Ill, 

V, pp. 92-97. 

(4) Marshall, Wright and Field, Materials for the Study of Elemen- 

tary Economics, Sees. 15-17, 24-25, 41-43, 51, 53-58. 
(6) Marshall, L. C, Readings in Industrial Society, Sees. 100, 
105, 106, 111, 112. 

Exercises 

lA. Give one clear example of each distinct type of production 
that you can think of, explaining the type. 

2A. In order that any human activity may be regarded as labor 
in the economic sense is it necessary that it (a) be irksome? 
(b) be physical rather than mental? (c) result in any 
product? (d) result in a material product? (e) command a 
price in the markets of the world? Show clearly what it is 
that makes human activity productive labor. 

3A. Are the following activities, agents or agencies, productive, 
and if so, in what does their productiveness consist : Lum- 
bering; forest culture; mining; dair}^ farming; manufactur- 
ing dynamite; razing buildings; speculating in stocks; 
cold storage plants; an I. W. W. organizer; the telephone 
service; a fleet of British battleships; Madison policemen; 
insurance agents; bond salesmen; prison wardens; "criminal 
lawyers"; authors? 

4A. Is it possible for unaided nature to be economically pro- 
ductive? Can nature and man produce economic goods 
without the aid of capital? 

5 A. Which of the following are productive laborers and why: 
Madison policemen on duty at a University of Wisconsin 
football game; a university football player; a preacher; a 
volunteer settlement worker; a banker; a thief; the editor of 
a "yellow" periodical; a manufacturer of war munitions? 



22 Elements of Economics 



CHAPTER IX— THE INDUSTRIAL ORGANIZATION OF 
PRODUCTION 

I. The Nature of Modern Industry 

Modern industry is distinguished by the machine process, 
the factory system, the division of labor, the great use of 
capital, and the prevalence of group action. 

II. The Machine Process 

1. Distinction between tools and machines (2) 121-123; 
(6) 426-428. 

2. The transition from tools to machines during the indus- 
trial revolution (2) 221-230. 

3. The transition from muscular to mechanical power 
(2) 132-41. 

4. The superior productivity of the machine process 
(6) 429-430. 

5. Types of productive activity best adapted to the machine 
process (6) 434-436. 

III. The Factory System (6) 79-81; 82-85; 89-91; 195-198; 

(7) 54-65. 

Distinction between the factory system and its predecessors, 
the guild and the domestic systems, in the following par- 
ticulars: 

1. Ownership of raw materials. 

2. Ownership of tools and machinery. 

3. Ownership of the work place. 

4. Control over the labor power. 

5. Work of superintendence and management. 

6. Control of the marketing. 

IV. The Specialization of Labor (2) 119-120; 124-126. 

1. Separation of occupations. 

2. Territorial speciahzation of labor (2) 127-128; (4) 189- 
197; (6) 386-391. 

a. Sectional. Reasons for the localization of industry 
and labor. 

b. National. (2) 129-130. 

3. Technical "division of labor" (4) 198-204; (6) 381-382. 



Industrial Organization 23 

By the technical division of labor is meant the division of a 
productive process into many parts. 

a. Advantages (2) 120-121; (6) 394-396. 

(1) A gain of time. 

(2) Development of greater skill. 

(3) The more advantageous use of capital. 

(4) The more advantageous use of labor. 

(5) The stunulation of inventions. 

(6) Through the simplification of operations, the substi- 
tution of machinery for human labor. 

b. Disadvantages (6) 397-400. 

V. The Capitalistic Character of Modern Industry 
VI. Prevalence of Group Action 

References 

(1) Ely, R. T., Outlines of Economics, Ch. VIII, pp. 124-130. 

(2) Carver, T. N., Principles of Political Economy, Chs. X, XI. 

(3) Clay, Henry, Economics for the General Reader, Ch. 11. 

(6) Marshall, L. C, Readings in Industrial Society, Sees. 31, 33, 

36, 37, 75, 141, 143, 146, 148, 149, 158, 160, 164. 

(7) Hobson, J. A., Evolution of Modern Capitalism, pp. 54-65. 



24 Elements of Economics 



CHAPTER X— BUSINESS ORGANIZATION OF PRO- 
DUCTION 

I. The Nature of Business 

II. Accounting Statements Revealing the Condition of a 
Business Unit (4) 814-817 

1. The statement of assets and liabilities — the balance 
sheet or financial statement. 

2. The statement of income and expenditure, showing profit 
and loss — the operating statement. 

III. The Sole Proprietorship as a Type of Business Unit 
(6) 358-359 

IV. The Partnership as a Type of Business Unit (4) 233- 
234; (6) 359-361. 

1. Nature of partnership. 

2. Advantages to business-man. 

a. Ease of organization. 

b. Elasticity of contractual relations among the partners. 

3. Disadvantages to business-man. 

a. Unlimited personal liability. 

b. Instability. 

c. Unadaptabihty to the largest enterprises. 

V. The Corporation as a Type of Business Unit (6) 361-367 

1. Nature of corporation. A corporation is an association 
of individuals known as stockholders empowered by legal 
charter, through a board of directors and under a cor- 
porate name to act as one person in the conduct of a 
specified business. The corporation is an artificial person 
created by law for some specific purpose. 

2. The provisions of the corporation charter (4) 234-236. 

3. The corporation management. 

4. Advantages to business-man. 

a. Limited liability. 

b. Stabihty. 

c. Transferabihty of interests. 

d. Efficiency in management. 

e. Command over large amounts of capital. 

5. Classification of corporation securities (4) 241-251; 
(6) 341-346. 



Business Ouganization 25 

a. Stocks— entrepreneurial interests, 

(1) Preferred. 

(a) Cumulative, (b) Non-cumulative. 

(2) Common. 

b. BoikIs — creditor interests. 
Corporation capital and capitalization. 
i.. The meaning of corporation capital. 

The term "capital," as used in business, means all 
wealth which yields income for its owner. It is fre- 
quently referred to as "the actual property devoted 
to some pi'oductive end." Capital, as wealth yielding 
income, may include natural resources, social or pro- 
ductive capital, acquisitive capital, intangibles, such as 
good will, as well as tangible material goods. From 
this property investment in business, income is ex- 
pected. 

The capital of a corporation maj^ be partly ''owned" 
or "borrowed." "Gross capital" is a term sometimes 
used to describe the investment of the owners plus 
theL»* borrowed capital, and "net capital" to indicate 
the proprietors' own capital. 

Capital, hke all wealth, has value, which may be 
quantitativel}^ expressed in terms of money. Capitali- 
zation is the valuation of capital. 

b. Corporation capitalization in a legal sense. In a 
strictly legal sense capitalization means the par value 
of the authorized amount of capital stock of a corpora- 
tion. "Capital stock" means the proprietors' own 
personal capital invested in the business as distin- 
guished from borrowed capital. 

c. Corporation capitalization in an economic sense. In 
the economic sense capitalization means the valuation 
placed upon the capital by the proprietors. Originally 
this capitalization is measured by the total par value 
of all the outstanding stocks and bonds of a corpora- 
tion. Such capitalization usually does not long coin- 
cide with the real value of the invested capital. The 
divergence between the capitalization as represented 
by the par value of the outstanding stocks and bonds 
and the real capital value results in over-capitalization 
and under-capitalization. 



26 Elements of Economics 

d. Standards for determining capital value and a rea- 
sonable capitalization. (4) 252-256. 

(1) Original investment. 

(2) Cost of reproduction minus depreciation, i.e., 
cost of replacement in present condition. 

(3) Earning capacity. 

e. Nature of over-capitalization and of under-capitaliza- 
tion. 

f. Objections to over-capitalization. 

(1) Objection of the consumer. 

(2) Objection of the investor. 

7. Social dangers in corporations (2) 170-175. 

References 

(1) Ely, R. T., Outlines of Economics, Ch. XIII, pp. 212-230. 

(2) Carver, T. N., Principles of Political Economy, Ch. XIV. 

(3) Clay, Henry, Economics for the General Reader, Ch. V, pp. 97- 

106. 

(4) Marshall, Wright and Field, Materials for the Study of Ele- 

mentary Economics, Sees. 64, 65, 69-72, 232. 

(5) Hamilton, W. H., Current Economic Problems, Sees. 90, 92- 

95. 

(6) Marshall, L. C, Readings in Industrial Society, Sees. 126- 

127; 136-138. 

(7) Lyon, Hastings, Corporation Finance, Part I. Capitalization, 

Ch. VIII. 

(8) Dewing, A. S., The Financial Policy of Corporations, Vol. I. 

Exercises 

lA. Adams, Brown and Cole estabhsh the "A. B. C. Leather 
Goods Company," a partnership with capital of $300,000 
to which each of the partners contributes $100,000. Adams 
has assets in excess of $300,000; Brown and Cole have 
$25,000 each in addition to the money invested in this part- 
nership. 

a. How would the death of Adams affect the perpetuity of 
the partnership? 

b. Suppose the business to be forced into bankruptcy with 
habihties exceeding assets by $100,000. To what extent 
is each of the partners liable for the debts of the company 
and how would the present indebtedness be settled? 



Business Organization 27 

c. Would the liability arising out of the bankruptcy be 
different if the firm were a corporation instead of a 
partnership? By whom would the $100,000 loss be borne? 
2A. An industrial corporation has issued $30,000,000 of 7 per 
cent cumulative preferred stock, $30,000,000 of common 
stock, and $10,500,000 of 5 per cent bonds. For the year 
1914 its net earnings were $1,350,000; for 1915, due to heavy 
war business, $5,400,000. Show how these net earnings were 
distributed among the holders of the different securities in 
both 1914 and 1915 upon the assumption that the directors 
decided to take the entire amount of the net earnings out 
of the business. 
3A. A corporation has issued 5% bonds to the amount of $600,- 
000; 6% cumulative preferred stock amounting to $300,000; 
and $300,000 in common stock. Its earnings in 1916 were 
$36,000; in 1917, $120,000. In each year all earnings were 
distributed. Show the amount paid each year on each $100 
share of stock and each $100 bond. In 1918 this corporation 
went into bankruptcy. After paying all obHgations aside 
from those due stockholders and bondholders, there remained 
assets amounting to $750,000. How were these assets 
distributed, assuming the preferred stock to have priority as 
to assets over the common stock? How would the assets 
have been distributed if the preferred stock and common 
stock had had equal claims to assets? 
4A. Construct a balance sheet using the following data: 

Income reinvested (Surplus) $105,000 

Raw material 70,000 

Cash on hand 23,000 

Accounts receivable 20,000 

Common stock 100,000 

Preferred stock 100,000 

Funded debt (Bonds) 200,000 

Land and buildings 400,000 

Undivided profits 93,000 

Accounts payable 20,000 

Machinery 80,000 

Finished goods on hand 25,000 

5 A. A corporation has the following securities outstanding: 5% 
bonds amounting to $100,000; 7% cumulative preferred stock 
amounting to $100,000; common stock amounting to 
$100,000. Other data concerning the operation of the 
corporation are these: rent, $15,000; salaries and wages, 



28 Elements of Economics 

$40,000; insurance, $2,000; taxes, $4,000; other operating 
expenses, $40,000. Depreciation on the plant, valued at 
$200,000, is figured at the rate of 5% per year. Gross revenues 
for a given year were $130,000. What were the profits, and 
how were they divided, assuming that the board of directors 
voted that all profits be distributed? 

6A., Assuming that the government has no need for your money, 
suppose that you have five thousand dollars to invest. 
Indicate what considerations you would keep in mind in 
deciding whether to invest in the bonds, preferred stock, or 
common stock of any of the ''industrials" listed on the New 
York Stock Exchange 

7A. Select at least one industrial and one railway stock, prefer- 
ably of corporations with which you are somewhat ac- 
quainted. Note for a period of two weeks in the financial 
columns of the daily press or of financial journals, the daily 
highest prices at which these stocks are bought and sold. 
Prepare a table showing your data, and graphs showing the 
fluctuations of your selected stocks. 

8A. Write up the financial history of the concern described 
below, giving dear answers to the questions asked. 

a. The Consumers' Gas and Light Company, organized in 
1900, in that year built a plant costing $7,000,000.00. In 
order to finance this project, the company sold 50,000 shares 
of common stock, at an average price of $80.00 per share 
($100.00 par value), and 3,000 5% First Mortgage Bonds at 
par ($1,000.00 par value). To what extent was this cor- 
poration over-or under-capitalized in 1901, if valued on 
the original investment basis? 

b. In 1908 this corporation earned a net income of $400,000 . 00. 
No change having taken place in the capitahzation, and 
money in such investments assumed to be worth 7%, what 
is the capital value of this concern when valued on the earn- 
ing capacity basis? Is it over-or under-capitahzed? What 
is the rate of return that can be paid on the common stock? 

c. The records of this company show that between the years 
1902 and 1908 additions and betterments had been made to 
the plant, costing the company: 

1903— $50,000.00 
1904—170,000.00 
1905—150,000.00 
1906—200,000.00 
1907—430,000.00 



Business Organization 29 

These additions were paid for out of the surplus funds 
accumulated from earnings. What is the capital value 
of this corporation in 1908 when valued on the original 
investment basis? Is the company over- or under- 
capitalized? 

d. The cost of constructing such a plant and getting it into 
operation has increased 50% over its total cost. Assuming it 
to be depreciated 12%, what is the capital value on the cost 
of reproduction basis? Is the corporation over-or under- 
capitalized when judged according to this standard? 

e. In 1908 this company appealed to the State Public Utility 
Commission for permission to increase its rates, claiming 
that it was not making a fair return on the fair capital value 
of the concern. Supposing this Commission followed a 
policy of allowing a 7% return on the fair value of public 
utilit}'^ properties, what difference would it make to the 
company which standard of valuation was used? Show what 
the rate of return on the common stock would be if original 
investment is the standard used; when cost of reproduction 
minus depreciation is used. Could this Commission very 
well use earning capacity as a standard of valuation? Why? 



30 Elhments of Economic* 



CHAPTER XI— THE MOVEMENT TOWARD 
INDUSTRIAL COMBINATION 

I. The Movement Toward Industrial Combination 

1. The "horizontal combination" of industry. 

2. The "vertical combination" of industr3^ 

11. Factors Promoting Combination in the U. S. 
(6) 748-751 

1. Tariff favoritism. 

2. Railway favoritism. 

3. Practice of local underselling. 

4. Patent privileges. 

5. Manufacturers' rebates. 

III. The Purpose of Combination 

1. Industrial and commercial advantages of large scale pro- 
duction (6) 646-649; 760-761. 

2. Elimination of competition. 

3. Regulation of output. 

4. Maintenance of prices. 

5. Profits of promoters. 

IV. Natural Field for Combination • 

1. Natural monopolies. 

2. Businesses handling standardized articles. 

3. Businesses handling widely used commodities. 

4. Businesses protected by patents. 

5. Businesses requiring a large amount of capital. 

V. Forms of Combination 

1. Informal or formal associations (6) 738-741. 

2. Pools (6) 732-737. • 

Pools were agreements by which railroad companies or 
manufacturers divided the earnings in accordance with 
some stipulated ratio. 

3. Trusts (6) 732. 

A trust was originally a combination of corporations, the 
stock of the constituent corporations being assigned to a 
board of trustees for management. Each of the constitu- 



Industrial Cobibination 31 

ent corporations maintained its independent legal entity. 
The trust was not a corporation but rather a combination 
of corporations. 

4. Holding Company (4) 239-241; (6) 726-727. 

The holding company is a corporation which owns a con- 
trolling share of the stock of the corporations in the com- 
bination. The term "trust" in popular usage includes 
holding companies and mergers. The constituent cor- 
porations are subsidiary instead of nominally indepen- 
dent. 

5. Mergers. The merger is a corporation that buys up the 
stock of the constituent corporations, cancels it, and 
issues instead its own stock. In the merger there are 
neither nominally independent corporations as in the 
trust, nor subsidiary corporations as in the holding com- 
pany. 

References 

(1) Ely, R. T., Outlines of Economics, Ch. XIII, pp. 230-235. 
(3) Clay, Henry, Economics for the General Reader, Chs. VII, VIII. 
(6) Marshall, L. C, Readings in Industrial Society, Sees. 253, 
255-256, 281-282, 284-290, 292-293, 295-297, 299. 



32 Elements of Economics 



Part III — Valuation and Distribution 
CHAPTER XII— VALUE AND PRICE 

I. The Ordinary Meaning of Value 

Value is a term that is used in many different senses. We 
speak about the ethical, religious, aesthetic, political, social, 
and economic values of life. The common fundamental 
meaning in all these different uses is perhaps best expressed 
by such words as "worth," "esteem," "usefulness." Value 
is commonly attributed to anything that is of use in the 
satisfaction of human wants. 

In economics, however, the word "utility" is most fre- 
quently used to describe this power of a good to satisfy a 
human want. 

II, Nature of Economic Value 

Economic value is the power which goods have in affecting 
the economic activities of men. Some goods have economic 
value although they are not objects of exchange, and accord- 
ingly have no exchange value. Thej^ not only have utility, 
but determine economic conduct. Such economic values 
exist antecedent to any ratio of exchange 

III. The Nature of Exchange Value and Price 

Specialization in production having developed, exchange 
became desirable and necessary, and with the process of 
exchange arose the problem of determining value in ex- 
change. 

Exchange or market value is one manifestation of eco- 
nomic value. It has been aptly described as "power in ex- 
change." The exchange value of a good is its "power to 
command other desirable things in peaceful and voluntaiy 
exchange" (2) 266. To have exchange value a good must 
sway man's choice. Some things are chosen, others are re- 
jected, because they have a greater or lesser importance for 
man. It is this importance which things have when they 
become man's choices that gives them exchange value. 
Things that already exist in abundance will not be chosen. 



Valtte and Price 33 

Hence free goods have no exchange value. Of course, the 
choices are not always deliberate — instinct, habits of experi- 
ence, training, imitation, rational judgment may all motivate 
the choice. 

"When value is defined as power in exchange, it must not 
be confused with a mere ratio of exchange. A thing which 
confers upon its owner the power to command other things in 
peaceful and voluntary exchange has power or influence 
over the minds of men; it influences their choice and gets 
them to do things which they would not otherwise do. 
Within certain hmits, it exercises control, or at least in- 
fluence, over motives. Of course, when things exchange 
against one another, it must always happen that they ex- 
change in certain ratios; but the ratio is merely incidental 
and is not the essential characteristic of value." (2) 266-267. 

Price is exchange value expressed in terms of money. 

IV. Factors IN THE Determination of Exchange Value and 
Price 

1. Custom. 

2. Public authority 

3. Monopoly. 

4. Free competition of market. 

"Market" here means the general field within which 
the forces determining the price of a particular commodity 
operate. 

V. Analysis of Competitive Exchange Value and Price 

The essence of competition as a price determining factor 
lies in the free interaction of demand and supply. But the 
so-called law of demand and supply is a formula and not a 
theory of value. Both the demand and the supply, in a 
given market, and over periods of time, require explanation 
if value itself is to be understood. 

VI. Analysis of Demand as a Price-Determining Factor in 
A Given Market at a Given Time 

1. Meaning of demand. 

Demand means the amount of a good that buyers are 
ready to purchase in a given market at a given price. 
The amount of a good which buyers would be ready to 
take at some specified price is called the potential demand. 



34 Elements of Economics 

2. The determinants of demand. 

a. Desire. Goods are desired because they have utiUty. 

b. Purchasing abihty. 

c. Inchnation to buy. 

3. Utihty as a determinant of demand. Assuming purchas- 
ing abiUty, the task is to analyze utihty as a force deter- 
mining demand which thus helps to establish exchange 
value. The mere fact, however, that a thing is wanted in 
the satisfaction of a human desire is not sufficient to 
explain its exchange value. The question is, how much 
or how badly is it wanted? How much of his possessions 
or control over other goods is a person willing to give in 
exchange for a given good? The answer to this question 
involves a discussion of diminishing utility and of mar- 
ginal utility. 

4. The law of diminishing utihty. In determining how much 
a person is willing to offer for a unit of a given good, he is 
influenced by a certain fact of experience, which econ- 
omists have called the law of diminishing utility. This 
law states that the intensity of a person's desire for a good 
decreases as he acquires successive units of it. 

5. The importance of marginal utility as a determinant of 
demand. 

By the marginal utility of a good is meant the utility 
of any one of the homogeneous units of a good. Marginal 
utility does not mean the utihty of any particular unit, 
but the utihty dependent on the possession of any one 
unit of a given stock. 

Marginal utility depends upon the intensity of the 
want that is satisfied through the possession of one unit 
of a given stock of goods. The larger one's supply of a 
given good, the lower in general will be its marginal util- " 
ity. The smaller one's supply of a given good, the higher 
in general will be its marginal utility. 

Whether marginal utihty is defined as the utility of 
any one of the units of a stock of goods on hand or of an 
additional unit to be acquired varies with the viewpoint 
of prospective seller or purchaser. To the prospective 
seller, the marginal utihty of a good is the utihty he would 
sacrifice through parting with one unit of the good. To 
the prospective purchaser, the marginal utility of a good 
is the degree of importance he attaches to the possession 



Value and Prick 35 

of an additional unit of the good. If the units under 
consideration are verj^ small, the difference between the 
utihty of any one of the units on hand and the utility of 
an additional unit becomes negligible. 

What the prospective buyer always considers in mak- 
ing a purchase is the utility to him of "a little more or a 
little less." Men rarely buy the total supply of a good. 
It is usually the utility of a "little more or a little less" 
that determines their judgment of the value of a good to 
themselves and not its total utility. To this "little more 
or less" the term marginal has been given, and its utility 
is the marginal utility (3) 266-272. 

Marginal utility is sometimes called subjective value. 
Marginal utility or subjective value is measured by the 
largest amount of other goods which a person will give for 
a good, or the smallest amount of other goods which he 
will accept for it. 
6. The relation of subjective value to exchange value. 
Marginal utility or subjective value is the basis of ex- 
change value. Exchange value is the resultant of the 
subjective values of possible purchasers and sellers. 

VII. Analysis of Supply as a Price-Determining Factor in 
A Given Market at a Given Time 

1. Meaning of supply. 

a. Market supply means the amount of a good that sellers 
are ready to sell in a given market at a given price. 

b. Potential supply. 

The amount of a commodity which at any given time is 
available for a given market constitutes the potential 
supply. 

2. Determinants of market supply at a given time. 

Subjective value of good to prospective seller, i.e., 
marginal utihty of good in comparison with the margi- 
nal utiUty of money offered for the good. 
In formulating their marginal utilities or subjective 
values, not only the sellers but also the buyers, are 
influenced by the prevailing market prices. 

VIII. The Process of the Determination of Price 

1. The case of one buyer and one seller in either a barter or 
money transaction. 



36 Elements of Economics 

2. The case of sieveral buyers and one seller as illustrated by 
the auction. 

a. A single good. 

b. Several identical goods. 

3. The case of one buyer and several sellers. 

4. The case of several buyers and several sellers. 

a. The market, illustrated by produce markets, boards of 
trade, stock exchanges, in which for example: 

Prospective Buyers 

A will buy 1 unit at 30; or 2 at 21 ; or 3 at 16. 
B will buy 1 unit at 26; or 2 at 20; or 3 at 15. 
C will buy 1 unit at 22; or 2 at 17; or 3 at 12. 
D will buy 1 unit at 18; or 2 at 14; or 3 at 10. 

Prospective Sellers 

M will sell 1 unit at 12; or 2 at 17; or 3 at 20. 
N will sell 1 unit at 9; or 2 at 15; or 3 at 18. 
O will sell 1 unit at 8; or 2 at 14; or 3 at 16. 
P will sell 1 unit at 10; or 2 at 11; or 3 at 14. 

(1) Construction of demand schedule. Each buyer in the 
market formulates a more or less definite schedule of 
subjective values. The demand schedule of a given 
market is a composite of the subjective values of all 
prospective buyers. 

(2) Construction of supply schedule. Each seller in the 
market formulates a more or less definite schedule of 
subjective values. The supply schedule of a given 
market is a composite of the subjective values of all 
prospective sellers. 

(3) Graphic determination of price. 

There can be only one price in a given market at the 
same time. The market price will be the price at 
which the largest number of exchanges can be 
effected, where demand and supply are in equilibrium. 
Usually in such a market certain buyers and certain 
sellers will be excluded by their own subjective values, 
and only the most urgent buyers and sellers will 
actually exchange goods. 

b. The retail store. 

5. The relation of market price to imputed price. 

6. Nature and origin of buj-ers' and sellers' surplus. 



Value and Price 37 

IX . Analysis of Long-Time Demand and Supply 

So far the price determination has been made upon the 
basis of the interaction of the demand and supply existing 
in a given market at a given time. But there are certain 
slowly acting movements that affect the long time de- 
mand and supply, which must be studied if the problem 
of price determination is to be fully understood. The 
price established through the interaction of demand and 
supply in a given market at a given time reacts upon 
future demand and supply. 

1. Long-time determinants of demand. 

a. The elasticity of demand. 

Variations in the elasticity of demand in the case of 

(1) Necessities. 

(2) Luxuries. 

(3) Habitual consumption goods. 

(4) Non-habitual consumption goods. 

(5) Goods for which there are adequate substitutes. 

(6) Persons with large incomes. 

(7) Persons with small incomes, 

b. Education: 

c. Fashion. 

d. Changes in the price level. 

2. Long-tune determinants of supply. 

a. Physical hmitation of supply, 

b. Monopolistic limitation of supply. 

c. Expense of production. 

(1) Three possible cases. 

(a) Industries characterized by increasing expense 
per unit of product. 

(b) Industries characterized by decreasing ex- 
pense per unit of product. 

(c) Industries characterized by constant expense 
per unit of product. 

(2) Fixed and variable expenses. 

3. Interaction of long-time demand and long-time supply 
in the estabhshment of normal value and price. Normal 
value is the name given to the long-time trend of market 
values. Among the theories attempting to explain what 
determines value are 
a. The cost of production theories of value. 



38 Elements of Economics 

(1) The labor theory of value (3) 245-250. 

(2) The expense of production theory of value 
(3) 250-265. In the long run, if the goods are 
reproducible, and competition is effective, the ex- 
change value of goods tends to equal their cost of 
production. 

b. The marginal utility theory of value (3) 266-273. 

c. The vohtional theory of value, with emphasis upon 
bargaining. 

References 

(1) Ely, R. T., Outlines of Economics, Chs. IX, pp. 133-139; X 

and XL 

(2) Carver, T. N., Principles of Political Economy, Chs. XXII, 

XXIII. 

(3) Clay, Henry, Economics for the General Reader, Chs. XIV, XV. 

(4) . Marshall, Wright and Field, Materials for the Study of Elemen- 
tary Economics, Sees. 102, 104-105, 107-108, 114, 116-117, 
121, 124. 

(6) Marshall, L. C, Readings in Industrial Society, Sees. 93-96, 
171. 

Exercises 

lA. In a given market the demand for and supply of strawberries 
is as indicated in the following schedules : 

Price per box Demand in boxes Supply in boxes 

.$.04 
.06 
.08 
.10 
.12 
.14 
.16 
.18 
.20 
.22 

a. Plot the demand and supply curves and determine the 
market price. 

b. Suppose the demand to be twice as great at each of the 
above prices, the supply remaining as indicated. Con- 
struct the new demand schedule, plot the demand and 
supply curves, and determine the market price. 



1300 


50 


1050 


300 


900 


550 


725 


700 


625 


800 


550 


900 


475 


1000 


400 


1075 


350 


1150 


300 


1200 



Value and Price 39 

c. Suppose the supply to be one-half as great at each of 
the above prices, the demand remaining as indicated. 
Construct the new supply schedule, plot the demand 
and supply curves, and determine the market price. 

d. Suppose both the demand and supply to be twice as 
great at each of the above prices as indicated. Con- 
struct the new schedules, plot the demand and supply 
curves, and determine the market price. 

2A. In a given market there are the following demand and supply 
for a given commodity : 

A will buy 1 unit at $ . 45 ; or 2 units at $ . 40 ; or 3 units at $ . 27 
B will buy 1 unit at . 40 ; or 2 units at . 35 ; or 3 units at . 25 
C will buy 1 unit at . 30 ; or 2 units at . 28 ; or 3 units at . 26 
D will buy 1 unit at . 39 ; or 2 units at .35; or 3 units at .29 

M will sell 1 unit at $ . 27 ; or 2 units at $ . 34 ; or 3 units at $ . 40 
N will sell 1 unit at . 30 ; or 2 units at .35; or 3 units at .43 
will sell 1 unit at .25; or 2 units at .32; or 3 units at .38 
P will sell 1 unit at .30; or 2 units at .40; or 3 units at .45 

a. Construct the demand and supply schedules, plot the 
demand and supply curves, and determine the market 
price. 

b. Remembering the market price estabUshed in "a," 
name the buyers and sellers and indicate the number 
of units each one buys or sells. Why do the remaining 
units not exchange hands? 

c. Using the above data show clearly what is meant by 
the subjective value of the commodity to A and to M. 

3 A. Given the following data, construct the demand and supply 
schedules and determine the market price : 
A will buy 1 unit at $.12; or 2 units at $.08; or 3 units at $. 06 
B will buy 1 unit at .10 ; or 2 units at .07 ; or 3 units at . 05 
C will buy 1 unit at .11; or 2 units at . 09 ; or 3 units at .07 
D will buy 1 unit at . 10 ; or 2 units at . 06 ; or 3 units at . 05 

M will sell 1 unit at $ . 07 ; or 2 units at $ . 1 1 ; or 3 units at $ . 14 
N will sell 1 unit at . 04 ; or 2 units at . 07 ; or 3 units at .11 
O will sell 1 unit at . 03 ; or 2 units at . 08 ; or 3 units at .12 
P will sell 1 unit at . 05 ; or 2 units at . 07 ; or 3 units at . 09 
4 A. By means of the following data construct a demand and a 
supply schedule and from them show how market price tends 
to be established: 



40 Elements of Economics 

A Will buy 1 unit at $ . 50 ; or 2 units at $ . 40 ; or 3 units at $ . 35 
B will buy 1 unit at . 45 ; or 2 units at . 30 ; or 3 units at . 22 
C will buy 1 unit at . 25 ; or 2 units at . 1 5 ; or 3 units at . 12 

M will sell 1 unit at $ . 10; or 2 units at $ . 15; or 3 units at $ . 20 
N will sell 1 unit at . 15 ; or 2 units at . 30 ; or 3 units at . 35 
will sell 1 unit at . 40 ; or 2 units at . 45 ; or 3 units at . 50 
5 A. An enthusiastic cement factory promoter made the following 
statement : 

"We can easily prove to any fair-minded person that 
our proposition is a veritable gold mine. Cement can be 
put on the market by a well-equipped mill at a cost of $1 . 75 
a barrel, while it is seUing for S4 . 00, thus giving a profit of 
more than 100 per cent. With the supply of raw materials 
practically unlimited, our mill will soon be turning out 600,- 
000 bbls. per year, and our annual profits will be nearly 
$1,500,000." Supposing the facts to be as stated, what was 
overlooked in drawing conclusions? 



Monopoly and Monopoly Price 41 



CHAPTER XIII— MONOPOLY AND MONOPOLY PRICE 

I. The Nature of Monopoly 

1. Contrast between competition and monopoly as factors 
in the determination of price. 

2. Definition of monopoly. 

"Monopoly means that substantial unity of action on 
the part of one or more persons engaged in some kind 
of business which gives exclusive control, more particu- 
larly, although not solely, with respect to price" (1) 190. 
The unity of action may lie in production, selling, or 
buying. 

II, Classification of Monopolies 

A. As to degree. 

1. Partial. 2. Complete. 

B. As to beneficiary. 

1. Public. 2. Private, 
c. As to area. 

1. Local. 2. National. 3. International. 
D. As to source of monopoly power, 

1. Social monopolies, 

a. General welfare monopolies. 

(1) Patents. 

(2) Copyrights, 

(3) Public consumption monopolies, 

(4) Fiscal monopoHes, 

b. Special privilege monopolies, 

(1) Those based on public favoritism. 

(2) Those based on private favoritism. 

2, Natural monopolies, 

a. Those arising from natural limitation of supply of 
raw material. 

b. Those arising from peculiar properties inherent in 
the business, 

III. Incentive to Monopoly 

The gain to be derived from the stifling of competition has 
been the actuating motive in the estabhshment of monop- 



42 Elements of Economics 

oly. In certain businesses and industries the movement 
toward monopoly has been inevitable, e.g., industries whose 
supply of raw material is limited, transportation, public 
utilities, etc. 

IV. The Determination of Monopoly Price 

1. The monopolist's control of the supply. 

The monopolist controls the supply but not the de- 
mand. He endeavors so to adjust his output to the exist- 
ing demand that he will secure the highest net returns. 

2. Elements in the demand which influence monopoly price. 
The elasticity of the demand limits the monopoUst in his 
determination of price. The monopoly price of goods the 
demand for which is relatively elastic must be low; the 
monopoly price of goods the demand for which is rela- 
tively inelastic may be high. 

3. Establishment of monopoly price. 

4. Effect of taxes upon monopoly price. 

a. A fixed tax on the industry. 

b. A tax varying with the output. 

V. The Establishment of Class Price 

1. Competitive class price. 

2, Monopolistic class price, 
a. Use price. 

Reference 
(1) Ely, R. T., Outlines of Economics, Ch. XII. 

Exercises 
lA. In a certain market for a given commodity there could be 
sold 
1,000 units at 55c per unit, costing 17c per unit 
1,350 units at 45c per unit, costing 16c per unit 
2,000 units at 35c per unit, costing 15c per unit 
4,000 units at 30c per unit, costing 13c per unit 
6,000 units at 25c per unit, costing 12c per unit 
10,000 units at 20c per unit, costing lie per unit 
20,000 units at 15c per unit, costing 103^c per unit 
25,000 units at 14c per unit, costing 10c per unit 
28,000 units at 13c per unit, costing 93^c per unit 
30,000 units at 12c per unit, costing 9c per unit 
35,000 units at lie per unit, costing 83^c per unit 



Monopoly and Monopoly Price 43 

a. Determine the monopoly price. 

b. Determine the monopoly price if a tax of $250 is levied 

upon the industry as a whole. 

c. Determine the monopoly price if a tax of 1% is levied on 

the net profits. 

d. Determine the monopoly price if a tax of Ic is levied on 
each unit sold. 

2 A. a) Suppose a monopolisf could know in advance the de- 
mand schedule and the cost schedule of his commodity, 
where would he fix the price in the following case: 



Demand Schedule 


Cost Schedule 


10 units at $1000 


10 units at $500 


20 units at 


800 


20 units at 460 


30 units at 


700 


30 units at 450 


40 units at 


600 


40 units at 430 


60 units at 


500 


60 units at 425 


80 units at 


450 


80 units at 420 


00 units at 


400 


100 units at 415 



b) Determine the price if the manufacturer were taxed $100 

on every unit he sold. 

c) Determine the price if the manufacturer were taxed 

$1000 a year. 
3A. What fare will be charged by a street car company having an 
exclusive franchise and not subject to regulation if 
at 10c 400,000 fares per annimi can be sold, 
at 9c 500,000 fares per annum can be sold, 
at 7c 900,000 fares per annum can be sold, 
at 6c 1,000,000 fares per annum can be sold, 
at 5c 1,200,000 fares per annum can be sold, 
at 4c 1,500,000 fares per annum can be sold, 
the fixed expenses being $10,000 per annum and variable 
expense 3c per fare? 
Record mathematical operations in tabular form. 



44 ELESdENTS OF ECONOMICS 



CHAPTER XIV— THE WAGES OF LABOR 

I. Distribution, a Process of Valuation 

1. Wages, the valuation of the services of labor. 

2. Interest, the valuation of the services of capital. 

3. Rent, the valuation of the services of land. 

4. Profits, the valuation of the services of the entrepreneur. 

II. The Nature of Wages 

"Wages constitiite the price paid for the services of labor" 
(1) 427. 

1. Money, or nominal wages. 

2. Real wages. 

III. The Process of the Determination of Wages 

The process of the determination of wages, like the deter 
mination of interest and rent, is a problem in valuation. 
The general principles of value are applicable here, and hence 
the interaction of demand and supply must be studied. "So 
far as the wages of any one kind of labor are concerned, they 
will tend to be fixed at the point where the supply of that 
kind of labor and the demand for it are in equilibrium" 
(1) 428. 

IV. Analysis of the Demand for Labor 

1. Meaning of the demand for labor. 

2. Elasticity in the demand for labor. 

a. Changes in the demand for the products of labor. 

b. Ease of substitution of capital goods or natural re- 
sources for labor. 

V. Analysis of the Supply of Labor 

1 . Meaning of the supply of labor. 

2. Distinctive characteristics of the labor supply (6) 560- 
562. 

a. Perishability. 

b. Inseparability of labor from the person of the laborer. 

c. Comparative immobility. 

3. Relation of the stiiicture of the population to the supply 
of labor. 



Wages op Labok ' 45 

a. Sex. 

b. Age. 

c. Efficiency. 

4. Relation of the growth of the population to the supply 
of labor. 

a. Statement of the Malthusian theory of population: 
Population has a tendency to outrun the food supply 
and is only held back by the operation of certain positive 
checks which result in a high death rate, and certain 
preventive checks, which result in a low birth rate 
(4) 109-111 ; (5) 457-459. 

b. Criticism of the Malthusian theory of population 
(5; 462-467. 

VI. The Wage Contract 

The interaction of the demand for labor and the supply of 
labor in the determination of wages finds expression in the 
wage contract. The wages actually paid are fixed by agree- 
ment between the employer and employee. This agreement 
reflects the subjective value which the employer places upon 
the services of the prospective laborer, and the subjective 
value which the laborer places upon his own services. Th 
employer's subjective value is influenced by his estimate of 
the laborer's productivity under the given conditions of his 
employment. The laborer's subjective value is influenced 
by what others of his group are getting, by what he thinks 
he could get in a possible alternative opportunity, by his 
standard of living, etc. Formerly the wage contract was 
made through individual bargaining; to-day where labor 
is organized it is made through collective bargaining. 

Various explanations have been made as to what deter- 
mines the limits within which the wage bargain must be 
made, including 

1. The subsistence theory of wages (3) 289-291; (4) 643- 
644. 

2. The wages fund theory (3) 291-293. 

3. The standard of life theory of wages (3) 301-307. 

4. The marginal or specific productivity theory of wages. 
Labor is subject to the law of diminishing productivity. 
If the number of laborers in a given establishment is 
increased, all other factors remaining the same, within 
limits the total product may be somewhat increased; but 



46 Elements of Economics 

the product will not be increased in proportion to the 
increase in the number of laborers. Sooner or later, 
moreover, a point is reached where an additional laborer 
will add a product no greater than the additional cost of 
his labor. This is the margin of employment, and the 
product attributable to his services, the marginal product 
of labor. The marginal or specific productivity theory of 
wages asserts that wages are measured by the marginal 
productivity of labor, i.e., by the value added to the pro- 
duct by the laborer who finds employment under condi- 
tions least favorable to his productiveness. (3) 293-301. 
The theory endeavors to explain the wages that can be 
paid to any laborer wiihin a particular group; it does not 
explain what determines the location of the margin of 
employment of the group. 

The standard of life theory of wages is of value in ex- 
plaining the long time supply of labor. The marginal 
productivity theory of wages sheds some light on the 
demand for labor. Most of these theories assume a per- 
fection and effectiveness of competition which nowhere 
exist. 

VII. Factors Influencing Wages 

1. The option of free land. 

2. The introduction of iniproved machinery. 

a. Early opposition of laborers. 

b. Short time effects. 
. c. Long time effects. 

3. Nature of the occupation. 

a. Its agreeableness or disagreeableness. 

b. Its regularity or irregularity. 

c. Its safety or danger. 

d. Its responsibility. 

e. Expense of requisite education. 

4. Technical education of labor. 

VIII. Ways of Wage Measurement and Payment 

References 

(1) Ely, R. T., Outlines of Economics, Ch. XXI. 

(2) Carver, T. N., Principles of Political Economy, Chs. XXXI, 

XXXII 



Wages of Labor 47 

(3) Clay, Henry, Economics for the General Reader, Chs. XVI, 

XVII. 

(4) Marshall, Wright and Field, Materials for the Study of Elemen- 

tary Economics, Sec. 187. 

(5) Hamilton, W. H., Current Economic Problems, Sec. 225. 

(6) Marshall, L. C, Readings in Industrial Society, Sees. 220, 223. 

Exercises 

IR. Show how money wages may advance and at the same time 

real wages decline. 
2D. The wages of any laborer are an expression of the demand 

for and the supply of labor. What labor demand is meant? 

a. Demand for labor in general? 

b. Demand for labor in his particular trade? 

c. Demand for any kind of work that he can do? 

3D. Do the laborers of the building trades of a given city profit 

by a general conflagration in that city? Do they profit by 

the erection of many public buildings? 
4D. Can the labor supply ever increase without a corresponding 

increase in population? 
5R. State the Malthusian theory of population, showing its 

application and limitations. 
6D. Show what is meant by the marginal productivity theory of 

wages. Is this theory inconsistent with the statement that 

the demand for and supply of labor determine wages? 
7 A. Trace the influence of free land upon wages in the United 

States. 
8D. Why is it that the heavy, dirty, and disagreeable work of 

the world is usually paid less than agreeable work? 
9D. Cite as many reasons as you can why the skilled trades today 

are more remunerative than clerical and semi-intellectual 

work. Why isn't there a great flow of labor from the latter 

to the former group? 



48 Elements of Economics 



CHAPTER XV— THE INTEREST OF CAPITAL 

I. The Nature of Interest 

"Interest may be defined as the income which goes to the 
owner of capital, whether he uses it in his own business or 
lends it to somebody else." (2) 418. 

1. Loan interest. The investor, unwilling himself to take 
the entrepreneurial risk, receives a price for the use of 
his money or goods for a definite period of time, which is 
called loan interest. When interest is defined as "the 
price paid for the services of capital," loan interest is 
usually meant. 

2. Imputed interest is "that portion of the value of the pro- 
ducts of industry which is attributed or imputed to the 
services of capital, as distinct from the services of land 
and labor." It is with imputed interest that we are 
concerned in the problem of distribution. But in out- 
analysis of the interest problem we shall have to consider 
both loan interest and imputed interest. We shall have 
to deal with capital as a loanable fund, whether it be 
converted into productive capital goods .or consumption 
goods. 

II. The Former Disrepute of Interest Taking 

III. The Process of the Determination of the Interest 
Rate 

The rate of interest equals the price paid per annum for a 

• given loan divided by the face value of the loan. 

The process of the determination of the interest rate, like 
the determination of wages and rent, is a problem in valua- 
tion. The interaction of the demand for capital and the sup- 
ply of capital must be studied. It is because some persons 
place a comparatively high subjective value upon present in 
comparison with future goods that there is a demand for 
loanable funds. And it is because some people have a com- 
paratively low preference for present as compared with fu- 
ture goods that there is a supply of loanable funds. The 
interest rate will normally be fixed where the demand for 
and supply of loanable funds is in equilibrium. 



Intebbbt op Capital 49 

IV. Sources op the Demand for Loanable Funds 

The demand for loanable funds comes from persons with 
a high preference for present goods including: 

1. Entrepreneurs, who want capital for its productivity. 
This productivity of capital (by which is meant that when 
capital is used in production under the wise guidance of 
entrepreneurs it results in a more valuable product than 
when capital is not used) explains the possibility of inter- 
est. The productivity that determines the interest that 
can be imputed to capital is the marginal or specific pro- 
ductivity of capital — the value by which the total product 
would be decreased if any particular unit of capital were 
not used. While the marginal productivity of capital 
explains the interest that can be imputed to any one unit 
of capital of a certain type, it does not explain what deter- 
mines the margin of employment of the particular type of 
capital itself. 

2. Consumers, who are wilhng to forego some of their income 
as an interest payment for the use of present goods. 

a. Consumers having intense present wants. 

b. Consumers having small present income. 

c. Consumer anticipating a large future income. 

d. Consumers having a hazy view of the importance of 
future wants due to 

(1) Ignorance. 

(2) Natural improvidence. 

V. Sources of the Supply of Loanable Funds 

L The supply of loanable funds comes from persons with a 
low preference for present goods because of 

a. Confidence in the future security of savings due to 

(1) Stability of government. 

(2) Stabihty of banking institutions and laws. 

b. Large present income. 

c. Anticipation of a small future income. 

d. Clear view of the urgency of future needs due to 

(1) Education. 

(2) Natural prudence. 

2. The relation of interest to the supply of capital 

While some saving would occur even if no interest were 
paid, the payment of interest is a great stimulus to saving 
and the accumulation of a supply of capital. 



60 Elements of Economics 

Interest is necessary as a compensation for waiting, 
which most people consider a sacrifice. The amount 
actually necessary to recompense marginal waiting is called 
net interest. Gross interest involves payment for supervi- 
sion and risk of investment as well as for waiting. At any 
given time most people consider present goods worth 
more to them than future goods of like kind and number. 
The reasons for this "time preference" are: 

a. The inability of most people to visualize future wants 
as clearly as present wants. Present wants are felt as 
more urgent. 

b. The uncertainty of life. 

c. The hope that perhaps the future will take care of 
itself. 

"Time preference" is the fundamental explanation of the 
interest problem, and is basal to much of the theory of value 
and distribution. 

VI. Determination of the Interest Rate 

VII. Factors Influencing the Interest Rate 

VIII. Justification of Interest as a Reward for Waiting 

References 

(1) Ely, R. T., Outlines of Economics, Ch. XXIV, pp. 493-499, 

515-524. 

(2) Carver, T. N., Principles of Political Economy, Chs. XXXV, 

XXXVI. 

(3) Clay, Henry, Economics for the General Reader, Ch. XVIII, 

pp. 320-327. 

Exercises 

IR. State the marginal productivity theory of interest. 

2D. It is sometimes said that the interest rate is measured by 
the marginal productivity of capital. Is it inconsistent 
with this statement to assert that the interest rate is a re- 
sultant of the interaction of the demand for and the supply 
of loanable funds? 

3D, Show how in your opinion the following tend to affect the 
interest rate of any given market : 

a. The education of the people concerning the elimination of 
waste. 



Interest of Capital 51 

b. The education in thrift given the people in our various 
Hberty loan and war savings campaigns. 

c. The world war. 

d. An increase in the supply of money. 

4D. If a corporation declares an unearned dividend, do the stock 
holders receive interest? If not, what do they receive? 



S2 Elements of Economics 



CHAPTER XVI— THE RENT OF LAND 

I. The Nature of Rent 

Popularly the word "rent" is used to describe the amount 
paid bj^ one person to another for the temporary use of a 
durable good, which is to be returned to the owner when 
the specified period of use has expired, e.g., the rent of a 
house, the rent of an automobile, the rent of a gown or dress 
suit, the rent of a textbook, etc. In most economic treatises, 
however, the term "rent" is used in a more special sense to 
describe the income derived from the ownership of land. 

1. "Commercial or contract land rent" is the amount actii- 
ally paid for the services of land. 

2. "Economic rent" may be defined as the annual use value 
of a piece of land. With the same appUcation of labor and 
capital some pieces of land are more productive than 
others. In this superior productiveness lies the possibil- 
ity of paying more for the use, or valuing more the pos- 
session, of one piece of land than another. 

3. Relation of contract rent to economic rent. Assuming 
perfect competition, the landlord cannot exact more than 
the economic rent from his tenant, nor can the tenant 
secure the land for less. Due to imperfect competition, 
custom, long-time contracts, ignorance, etc., the contract 
rent may vary widely from the economic rent. 

II. Causes of the Differential Return of Land 

1. Differences in the qualitj'^ of land. 

a. Physical. 

b. Chemical. 

c. Biological. 

2. Differences in location. 

III. Process of the Determination of Rent 

Like the value of everything else, the value of land, based 
upon its economic rent, is a resultant of the interaction of 
the demand for and the supply of land 

IV. Analysis of the Demand for Land 



Rent of Land 68 

V. Analysis of the Supply of Land 

1. The geographic supply. 

2. The economic supply. 

VI. The Measurement of Rent 

1. Under assumed conditions of uniform intensivity of 
cultivation from the extensive margin. The extensive 
margin is reached by resorting to inferior lands, marginal 
land being land which it just pays to utilize It is no-rent 
land. 

2. Under conditions of varying intensivity of cultivation 
from the intensive margin. The cultivation of all 
lands with uniform intensivity is a condition contrary 
to fact. But in the more intensive cultivation of 
the better lands, sooner or later, the point of diminish- 
ing returns is reached. By the law of diminishing 
returns is meant that when successive equal "doses" 
of labor and capital are applied to a given piece of land, 
a point is reached sooner or later, after which the succes- 
sive "doses" of labor and capital produce a diminishing 
return per "dose." The intensive margin is reached on a 
given piece of land when a "dose" of labor and capital 
yields a product just large enough to pay for itself. 

3. Statement of the theory of rent. 

The economic rent of an acre of land for any given use is 
measured by the difference between the money value 
of the product obtained from it by the use of the most 
advantageous combination of labor and capital, and the 
expense of utilizing it. 

VII. The Importance of Different Uses of Land in the 
Theory of Rent 

Land may be used for a great variety of purposes, including 
business, industrial, and residence sites, truck gardening, 
farming, and grazing. 

Land that is marginal for one purpose is not necessarily 
marginal for all purposes. The marginal lands used for 
comparison in the theory of rent are the poorest lands it 
pays to use for any purpose. 

VIII. The Capitalization of Rent and the Value of Land 
Land is valued because it commands a rent; its value is 
determined through the capitalization of its economic rent, 



54 Elements of Economics 

although where land rents are increasing, the selling value 
of land is apt to be higher than the capitalization of its 
present economic rent. The value of land is therefore 
determined by the productivity specifically attributable to 
it. 

IX. The Relation Between Rent and Prices (3) 334-337 

X. Factors Affecting Rents (4) 620-626 

1. Increase in population. 

2. Increase in the efficiency of agricultural labor. 

3. Increase in the amount or efficiency of agricultural capital. 

4. Improvements in transportation. 

5. Special factors affecting urban rents. 

a. Commercial. 

b. Residential. 

XI. The "Unearned Increment" in Land Values 

1. Its meaning and existence. An "unearned increment" 
in the value of land is an increase in value due primarily 
to social forces rather than to the efforts of the individual 
owner. It usually comes about through growth in popu- 
lation. The shifting of population may bring about an 
"unearned decrement." 

2. Unearned increment taxation. 

a. Its justice. 

b. Its limits. 

XIL The Socialization of Economic Rent or Single Tax 
Plan 

1. Nature of the single tax proposal. 

2. The case for the single tax (4) 889-897 ; (5) 724-726. 

3. Objections to the single tax (4) 889-897; (5) 726-727. 

a. Ethical. 

b. Political. 

c. Economic. 

XIII. Legitimacy of Land Rent as Private Income 

References 

(1) Ely, R. T., Outlines of Economics, Ch. XX. 

(2) Carver, T. N., Principles of Political Economy, Chs. XII, 

XXXIV, XLVIIL 



Rent of Land 55 

(3) Clay, Henry, Economics for the General Reader, Chs.'XIX, XX. 

(4) Marshall, Wright and Field, Materials for the Study of Elemen- 

tary Economics, Sees. 178, 180, 181, 182, 256-257. 

(5) Hamilton, W. H., Current Economic Problems, Sees. 351-353. 

Exercises 

1 A. A farmer who is capable of earning S2,000 elsewhere 
employs intelligently on his farm $6,000 worth of capital 
and 600 days of hired labor. Wages are S4 . 00 per day and 
interest rates are 5%. His capital wears out at the rate of 
S500 per annum. His insurance and taxes are $200 per 
annum and his annual expenditure for seed is $500. His 
average crop sells for $7,000. Find the rent of the land. 

2A. Given the following normal data pertaining to a wheat 
farm: Acres cultivated 350; yield per acre 20 bushels; 
selling price of wheat $2 per bushel; annual value of 
farmer's services $2,000; number of men employed 5; 
number of months each laborer worked 6; monthly wage of 
each laborer $125; value of capital goods employed $12,000; 
annual depreciation of capital 10%; interest rate 6%; 
annual expenditure for insurance and taxes $530; annual 
expenditure for seed $1,000. 

a. Determine the annual economic rent of the farm. 

b. If this IS the normal return on the farm, at what price 
would you be willing to purchase it? 

3A. In 1919 a 400 acre wheat farm yielded 25 bu. of whea^ to 
the acre, this grain selling at $2 . 50 per bushel. The value 
of the farmer's services was $2,000, hired labor cost $3,200, 
seed $1,000, value of capital employed was $10,000 and 
insurance and taxes amounted to $1,000. The interest rate 
was 8% and the depreciation on capital was 10%. 

a) What is the annual economic rent? 

b) What would you be willing to pay for the use of the farm 
for a year? 

c) What is the capitalized rental value of the farm? 

d) What would you be willing to pay for the farm as an 
investment? Why? 

4D. Under what circumstances, if any, may contract land 
rent exceed the economic rent? economic rent exceed con- 
tract land rent? 

5D. Discuss what is meant by the margin of utiHzation of land, 
distinguishing between the extensive and intensive margins 
of use. 



56 Elements of Economics 

6D. Would economic rent disappear 

a) If all land were owned by the government? 

b) If there were no law of diminishing returns in agri- 
culture? 

c) If there were an abundant supply of the so-called 
"better lands"? 

7D. Trace the effect of an increase in population of 100% on 
agricultural and urban rents. 

8D. Account for the decline of property values in an exclusive 
residential section of a university city with the establish- 
ment there of fraternity and sorority houses. 

9D. Why should the shady side of a business street have any 
effect upon the commercial rent which a business firm can 
pay for the use of its premises? 
lOR. Brief the case for and against the single tax. 
11 A. Would the appropriation of economic rent by government 
have any effect upon the settlement of the cut-over lands 
of northern Wisconsin? 



Profits of the Entrepreneur 57 



CHAPTER XVII— THE PROFITS OF THE ENTRE- 
PRENEUR 

I. Functions of the Entrepreneur (6) 266-267, 516-518, 
852-862. 

The entrepreneur is the person, or group of persons, that 
assumes the risk of the business enterprise. He profits if the 
business succeeds and loses if the business fails. As dis- 
tinguished from the landowner, laborer, and capitalist, he 
is often spoken of as the "business man." While these other 
three claimants to the product of industry are the recipients 
of incomes which he has contracted to pay, he himself is the 
recipient of a non-contractual income. 

To be sure "ever>" one who lias risked something on the 
success or failure of a particular business undertaking is, in 
that degree, entrepreneur." (1) 538. The term is, however, 
most usually apphed to the active or managing capitalist, 
rather than to the passive investor, the owners of natural 
resources, or the laborer. 

The entrepreneur is also responsible for the management 
of the enterprise, but this is a function which can to some 
extent be delegated and is largely delegated in corporations. 

Both risk taking and management are functions which to 
some extent are being shared by other factors in production. 
II. The Nature of Profits 

Profits constitute the residual share of the product of 
industry which goes to the entrepreneur. What is left as a 
net gain to the entrepreneur, who has assumed the fi- 
nancial risk, after meeting all claims against the business, 
constitutes his profits. Profits are a non-contractual income 
in contrast to contract rent, wages, and interest, which are 
contractual incomes. 

Since the proprietors of many businesses supply most of 
their own capital and actively manage the businesses them- 
selves, they are apt to think of their net returns as profits. 
But obviously such net returns include both interest and 
wages. The proprietor of a business is entitled to interest 
on his capital, which he uses himself, just as much as if he 
lent his capital to someone else. He is also entitled to wages 



58 Elements of Economics 

for his services of management just as he would expect a 
manager's wage if he were working for some one else. If 
after allowing the prevailing interest on invested capital and 
the wages of management, there is a residual product, such 
product constitutes true profits. 

Profits may be classified as necessary profits and surplus 
profits. Necessary profits are returns required to attract 
and hold capital investments in business enterprise, to 
induce people to assume risks essential to production. 
Surplus profits are a true form of surplus : something beyond 
what is strictly necessary to call forth the necessary function- 
ing in production. Surplus profits constitute an extra prize 
which entrepreneurs seek, whose ownership is often contested 
by other factors, and which is apt to invite heavy taxation 
by the state. 

III. Sources of Surplus Profits 

1 . Differential gains due to exceptional entrepreneurial abil- 
ity or exceptional productive opportunities. 

2. Imperfect competition. 

3. Conjunctural gains. Some war profits and some gains 
due to rapid changes in the price level illustrate conjunc- 
tural gains. 

IV. Justification of Profits as a Reward for Risk Taking 
(2) 443-449; (3) 315 

References 

(1) Ely, R. T., Outlines of Economics, Ch. XXV. 

(2) Carver, T. N., Principles of Political Economy, Ch. 
XXXVII. 

(3) Clay, Henry, Economics for the General Reader , Ch. XVIII, 
pp. 314-320. 

(4) Marshall, Wright and Field, Materials for the Study of 
Elementary Economics, Sees. 224, 225, 226, 227. 

(6) Marshall, L. C, Readings in Industrial Society, Sees. 100, 
199, 200, 326-328. 

Exercises 
ID. The American Telephone and Telegraph Company has 
thousands of stockholders and many bondholders. It has 
a board of directors and the usual officers. It has a general 
manager and district and local managers. Who is the 
entrepreneur that receives profits? 



Profits of the Entrepreneur 59 

2A. A person has an income derived from the following sources: 

a. Law practice, $8,000. 

b. U. S. bonds, $1,000. 

c. Bethlehem Steel Corporation Stock, $5,000. 

d. A business block rented to a general merchandise firm, 
$1,000. 

e. Stock in a Michigan copper mine, $5,000. 

f . A stock dividend received in a stock-watering operation, 
$5,000. 

Show by clear analysis which, or what parts of each, of 
these incomes may be considered rent, wages, interest, and 
profits. 



60 Elements of Economics 



CHAPTER XVIII— THE DISTRIBUTION OF WEALTH 
AMONG PEOPLE 

I, The Nature of Wealth and Income 

1. From the individual point of view. 

2. From the national or social point of view. 

II. Facts Concerning the Existing Distribution of Wealth 
Among the People of the United States 

1. The total available for distribution (6) 694. 

2. The actual distribution among the various economic 
classes (6) 695-698. 

III. Forces Promoting the Concentration of Wealth 
(6) 689-691. 

IV. Evils in the Concentration of Wealth (6) 687-689. 

V. The Problem of Poverty 

1. The nature of poverty (6) 700-702. 

2. The causes of poverty (6) 702-704. 

3. The remedies for poverty (6) 705-708. 

VI. The Problem of Improving the Distribution of Wealth 

1. Necessity of adopting some equitable basis of wealth 
distribution. 

2. The problem of regulating the acquisition of wealth. 

3. The problem of wealth diffusion. 

4. The advantages of a more general diffusion of wealth 
(6) 686-687. 

References 

(1) Ely, R. T., Outlines of Economics, Ch. XXVI. 
(3) Clay, Henry, Economics for the General Reader, Ch. XXIII. 
(6) Marshall, L. C, Readings in Industrial Society, Sees. 262- 
274. 



Nattjrb of Labor Organization 61 



Part IV — Labor in Industry 

CHAPTER XIX— THE NATURE OF LABOR ORGANIZA- 
TIONS 

I. The Historical Basis of Unionism (5) 581-582 

11. Structural Classification of Labor Organizations 
L As to membership (7) 31-44. 

a. Trade or craft union. 

(1) Local. 

(2) National or international. 

b. Industrial union. 

(1) Local. 

(2) National or international. 

c. Labor union. 

2. As to federation. » 

a. The city federation 

b. The state federation of labor. 

c. The American Federation of Labor (4) 668-669; 
(8) 75-82 

(1) Origin. 

(2) Membership. 

(3) Govermnent. 

(4) Purpose and pohcies. 

(5) Strength and weakness. 

d. Industrial Workers of the World (4) 700-704; 
(8) 82-91 

(1) Origin. 

(2) Membership. 

(3) Government. 

(4) Purpose and poUcies. 

(5) Strength and weakness. 

III. The Incorporation of Labor Organizations (8) 161-162. 

IV. The Economic Justification of Labor Organizations 

1 . The employer's point of view (5) 596-600. 

2. The laborer's point of view (5) 590-594. 

3. The public's point of view. 



62 Elements of Economics 

References 

(1) Ely, R. T., Outlines of Economics, Ch. XXII, pp. 444-446. 

(2) Carver, T. N., Principles ofPolitical Economy, Ch. XXXIII. 

(4) Marshall, Wright, and Field, Materials for the Study of 
Elementary Economics, Sees. 192-194, 203. 

(5) Hamilton, W. H., Current Economic Problems, Sees. 284, 
286, 288, 290, 291. 

(7) Hoxie, R. F., Trade Unionism in the United States, Chs. 
II-VI. 

(8) Carlton, F. T., History and Problems of Organized Labor, 
pp. 75-91; 103-126; 161-162. 



Labob Union Policies 63 



CHAPTER XX— LABOR UNION POLICIES 

I. The Policy of Collective Bargaining (5) 600-602; 605- 
608; (8) 128-134. 

1. The weakness of individual bargaining. 

2. The strength of collective bargaining. 

II. The Policy of the Closed Shop (5) 608-614; (8) 134-140; 

(9); (10) 

1. Nature of an open shop. 

2. Kinds of closed shops. 

a. The anti-union shop. 

b. The closed shop with open union. 

c. The closed shop with closed union. 

3. Grounds of justification of the closed-shop policy. 

4. Objections to the closed-shop policy. 

III. The Policy of Restricting Output (8) 140-143. 

1. The nature of output restriction as practiced by 

a. Employers. 

b. Labor organizations. 

2. The labor unionists' justification of the restriction of out- 
put. 

a. The "lump-of-work" argument. 

(1) Statement of the argument. 

(2) Criticism of the argument. 

b. The "health-of-the-worker" argument. 

3. The attitude of the employer toward labor's restriction 

of output. 

4. The attitude of the public toward labor's restriction of 

output. 

IV. The Policy of Regulating Hours (8) 149-156. 

1. The purpose in a shorter working day. 

2. The economic possibility of a shorter working day. 

a. Effect in industries where alertness and skill are 

required. 

b. Effect in industries where the pace is set by machines. 

3. Relation of the shorter working day to wages. 



64 Elements of Economics 

V. The Policy of Controlling the Introduction of Ma- 
chinery (8) 126-128 

1. Historical attitude of labor to the introduction of ma- 

chinery (4) 693-694. 

2. The "short time" effects of the introduction of machinery. 

3. The "long time" effects of the introduction of machinery. 

4. The difficulties of the period of readjustment following 

the introduction of new labor saving machinery. 

VI. The Policy of Promoting Class Solidarity 

1. Economic. 

2. Political. 

3. Social. 

References 

(1) Ely, R. T., Outlines of Economics, Ch. XXII, pp. 447-452. 

(4) Marshall, Wright, and Field, Materials for the Study of 
Elementary Economics, Sec. 199. 

(5) Hamilton, W. H., Current Economic Problems, Sees. 292, 
294, 295, 296. 

(7) Hoxie, R. F., Trade Unionism in the United States, Chs. 
X, XI. 

(8) Carlton, F. T., History and Problems of Organized Labor, 
pp. 126-156. 

(9) Groat, G. G., Organized Labor in America, Chs. XVI, XVII. 
(10) Commons, J. R., Labor and Administration, Ch. VII. 



Industrial Conflict 65 



CHAPTER XXI— INDUSTRIAL CONFLICT 

I. The Organization of Labor and of Employers for the 
Protection of Their Interests 

II. Labor's Means of Waging Industrial Conflict 

1. The strike (5) 614-617. 

a. Meaning. A strike is a preconcerted cessation of work 
on the part of a group of employees for the purpose of 
enforcing certain demands concerning the conditions of 
their continued employment. 

b. Classification of strikes. 

(1) Direct. 

(2) Sympathetic. 

(3) General (5) 644-646. 

c. Objects of strikes. 

d. Causes of violence in strikes. 

e. Efficacy of strikes. 

2. Picketing. 

3. The boycott (5) 618-620. 

a. Meaning. 

b. Forms of the boycott. 

(1) Simple or primary. 

(2) Compound or secondary. • 

c. Means of conducting boycotts. 

d. Conditions for success. 

4. Sabotage (5) 637-641. 

III. Employers' Means of Waging Industrial Conflict 

1. The lock-out. 

2. Strike-breaking by scabs (5) 617-618; 622-624. 

3. The black list. 

4. The injunction. 

IV. Reasons for the Growing Interest of the Public in 
Industrial Conflict 

V. The Legal Status of Industrial Conflict 

1. The restraining influence of certain legal doctrines, 
a. The common law doctrine of conspiracy. 



66 Elements op Economics 

b. The statute law doctrine of restraint of trade 
(5) 634-636. 

2. Court decisions concerning the legaUty of 

a. The strike. 

b. Picketing. 

c. The boycott. 

d. Sabotage. 

e. The lockout. 

f. The blacklist. 

3. Legal status of the injunction. 

References 

(1) Ely, R. T., Ouilines of Economics, Ch. XXII, pp. 452-457. 

(4) Marshall, Wright, and Field, Materials for the Study of 
Elementary Economics, Sees. 204-205. 

(5) Hamilton, W. H., Current Economic Problems, Sees. 297-304, 
310-312, 315, 334-335. 

(6) Marshall, L. C, Readings in Industrial Society, Sees. 246- 
251. 

(7) Hoxie, R. F., Trade Unionism in the United States, Ch. 
VIII. 

(8) Carlton, F. T., History and Problems of Organized Labor, 
Ch. VII. 

(9) Groat, G. G., Organized Labor in America, Chs; X, XI, 
XIV, XV. 



Industrial Peace 67 



CHAPTER XXII— INDUSTRIAL PEACE 

I. Agencies for Settling Industrial Disputes (10) 125- 
128. 

1. Mediation or conciliation, which iinphes the bringing 
together of the parties to an industrial dispute by a third 
party for peaceable settlement of the dispute by discussion 
and argument. The mediator is a confidential go- 
between. 

2. Voluntary arbitration which means the agreement by 
the parties to a dispute to submit the controversy to a 
third party by whose decision they promise to abide. 
The complete procedure in arbitration consists of the 
following steps: 

a. Submission of the case. 

b. Investigation. 

c. Refraining from strike or lockout during the investi- 
gation. 

d. Drawing up an award. 

e. Acceptance of the award. 

3. Compulsory investigation, which means that an investi- 
gation is made bj^ a board created by the state, with or 
without the consent of one or both parties to the dispute. 

4. Compulsorj^ arbitration, which means that the parties 
to a dispute are obliged to submit their case to a third 
party for decision and to abide by the decision 
(5) 574-576. 

II. Mediation and Coercion by Government in the Settle- 
ment OF Industrial Disputes (10) 125-174 

1. State boards of mediation and arbitration (10) 136-138. 

2. U. S. Board of Mediation and Conciliation established 
by the Erdman Act of 1898 as modified by the Newlands 
Act of 1913 (10) 138-143. 

3. The National War Labor Board (10) 145-146. 

4. Railroad Labor Board created by the- Transportation 
Act of 1920 (10) 147-148. 

5. Canadian Industrial Disputes Compulsory Investigation 
Boards established by the Act of 1907 (10) 168-172. 



68 Elements of Economics 

6. Compulsory Arbitration Courts in New Zealand, Austra- 
lia, and Kansas (10) 153-168, 173-174. 

III. Plans for Improving Industrial Government and Pre- 
venting Industrial Conflict 

1. Welfare work. 

2. Scientific management (7); (8) 247-275. 

3. Profit sharing (1) 461-463. 

4. Labor management. 

5. Trade agreements (8) 300-311. 

6. Shop committees. 

7. Industrial democracy or representative government in 
industry (1) 463-464; (6) 609-611. 

References 

(I) Ely, R. T., Outlines of Economics, Ch. XXII, pp. 457-469. 

(5) Hamilton, W. H., Current Eco?iomic Problems, Sees. 281-282. 

(6) Marshall, L. C, Readings in Industrial Society, Sees. 242, 
244, 245. 

(7) Hoxie, R. F., Trade Unionism in the United States, Chs. 
XII, XIII. 

(8) Carlton, F. T., History and Problems of Organized Labor, 
Chs. IX, X. 

(9) Groat, G. G., Organized Labor in America, Chs. XII, XIII. 

(10) Commons, J. R. & Andrews, J. B., Principles of Labor 
Legislation, Ch. Ill, pp. 125-174. 

(II) Commons, J. R. and Associates, Industrial Governmeni. 



Lab OB Legislation 69 



CHAPTER XXIII— LABOR LEGISLATION 

I. The Philosophy of Labor Legislation 

II. Legal Obstacles That Have Been Met in the United 
States in the Enactment of Protective Legislation 
FOR Labor (8) 329-340. 

III. Legislation Concerning the Hours of Work 

1. The nature of fatigue. 

2. Sources of fatigue in industry (6) 440-442. 

a. Overtime. 

b. Speeding up of machinery. 

c. Monotony of experience. 

d. Domination of mechanical rhythm over natural 
rhythm. 

e. Noise of machinery. 

3. Results of fatigue (6) 555. 

4. The benefits of the shorter working day. 

5. The economic possibility of the shorter working day. 

IV. Safety and Health Legislation 

1. The need of such legislation. 

2. The forms of such legislation. 

V. Child Labor Legislation (6) 558-560 

1. The problem of child labor. 

a. Prohibition of child labor. 

b. Guidance of child's activities. 

2. Provisions of child labor laws. 

a. State. 

b. Federal. 

VI. Minimum Wage Legislation (4) 723-733; (6) 529-594. 

1. Arguments for a legal minimum wage (5) 558-559. 

2. Arguments against a legal minimum wage (5) 564-566. 

3. The extent and types of minimum wage legislation 
(5) 562-564. 

VII. Legislation Concerning Employers' Liability' (4) 747- 
756; (5) 538-543 

1. Procedure in recovering damages' under the common 
law. 



70 Elements of Economics 

2. Employers' liability under the common law. The 
employer is required "to use reasonable care in protect- 
ing his employees against injury while engaged in his 
service." He is required to provide a reasonably safe 
place to work, reasonably safe tools, and reasonably 
competent fellow employees. 

3. Possible common law defenses of the employer in dam- 
age suits (6) 574-577; (10) 387-392. . 

a. Contributorj" negligence of the employee. 

b. Fellow servant rule. 

c. Assumption of risk. 

4. Statutory amendments of employers' liability acts 
(6) 597-599. 

VIII. Workmen's Compensation Legislation 

1. Progress. 

2. Scope. 

3. Scale of compensation. 

4. Administration. 

References 

(1) Ely, R. T., Outlines of Economics, €h. XXIII. 

(4) Marshall, Wright and Field, Materials for the Study of 
Elementary Economics, Sees. 211, 214. 

(5) Hamilton, W. H., Current Economic Problems; Sees. 264- 
266, 275, 277, 278. 

(6) Marshall, L. C, Readings in Industrial Society, Sees. 168, 
216, 217, 218, 219, 227, 232, 234. 

(8) Carlton, F. T., History and Problems of Organized Labor, 
Ch. XL 
(10) Commons, J. R. and Andrews, J. B., Principles of Labor 
Legislation, Chs. IV, V, VII, VIII, pp. 387-392. 



Social Insukance and Unemployment 71 



CHAPTER XXIV— SOCIAL INSURANCE AND 
UNEMPLOYMENT 

I. The Nature of Social Insurance as a Remedy for the 
Economic Insecurity of Workers (6) 532-534; 588-589 

1. Features of a good system of social insurance. 

II. Social Insurance Against Industrial Accidents 
L The hazards of modern industry (6) 549-550. 

2. The extent of industrial accidents (5) 534-537; 
(6) 550-552; (10) 392-415. 

3. Social loss through industrial accidents (6) 552-553. 

4. The incidence of industrial accidents (5) 540-542. 

5. The inadequacy of employers' liability in providing com- 
pensation (5) 538-540; 542-543. 

6. Workmen's compensation legislation as insurance against 
industrial accidents. 

III. Social Insurance Against Sickness (10) 415-429. 

1. The need for health insurance (5) 543-544; (6) 553-554. 

2. Systems of compulsory health insurance (5) 544-545. 

a. German. 

b. British (5) 546-548. 

IV. Social Insurance Against Old Age and Invalidity 

(10) 429-438 

1. The system of old age pensions (5) 548-550. 

2. The system of compulsory insurance. 

V. Unemployment 

1. The problem of unemployment (6) 536-537; 539-540. 

2. The amount of unemployment (6) 544-549. 

3. The causes of unemployment (5) 524-526. 
„ a. Personal (6) 538. 

b. Changes in industry (6) 541-542. 

c. Periodic fluctuations in industry. 

d. Necessity of a supply of reserve labor to meet the 
greatest demands in the years of prosperity. 

4. Proposed remedies for unemployment other than in- 
surance (10) 297-322. 



72 Elements of Economics 

a. Labor exchanges (5) 526-528; (6) 579-581. 

b. Government employment through systematic distribu- 
tion of public work (5) 528-530; (6) 581-582. 

c. Regularization of industry (6) 582-586. Among the 
means suggested has been the taxation of unemploy- 
ment. 

5. Compulsory insurance of unemplojTiient (5) 531-534; 
(6) 586-587; (10) 442-448. 

References 

(1) Ely, R. T., Outlines of Economics, Ch. XXVIII, pp. 587-594. 

(4) Marshall, Wright and Field, Materials for the Study of 
Elementary Economics, Sees. 215-216. 

(5) Hamilton, W. H., Current Economic Problems, Sees. 254- 
270. 

(6) Marshall, L. C, Readings in Industrial Society, Sees. 203, 
205, 207-209, 211-215, 227, 229-231. 

(8) Carlton, F. T., History and Problems of Organized Labor, 

Ch. XVII. 
(10) Commons, J. R. and Andrews, J. B., Principles of Labor 
Legislation, Chs. VI, VIII. 



Labor and Immigration 73 



CHAPTER XXV— LABOR. AND IMMIGRATION 

I, Factors Creating the Immigration Problem 

1. The greatly increased volume of immigration prior to 
the war (4) 137; (5) 468-472. 

2. The changing type of immigrant (4) 138-140. 

3. The urban preference and segregation of the immigrant. 

4. The disappearance of free land. 

II. The Value of the Immigrant (5) 474-477. 

1. Economic. ■ 

2. Social. 

3. Political. 

III. The Menace of the Immigrant (5) 478-482, 484^488, 
499-501. 

1. Economic. 

2. Social. 

3. Political. 

IV. The Restriction of Immigration Through a Literacy 
Test (5) 493-496; (6) 603-604. 

1. Nature of the test: the abihty to read some language. 

2. Arguments in favor of the literacy test. 

3. Arguments against the literacy test. 

V. The Restriction of Immigration by a Percentage Rule 
The act of 1921 restricts the number of immigrants to 
three per cent of the number of foreign born of a given 
nationality in the United States as shown by the census of 
1910. 

VI. Attitude of Organized Labor Toward Immigration 

References 
(1) Ely, R. T., Outlines of Economics, Ch. V, pp. 68-74. 

(4) Marshall, Wright and Field, Materials for the Study of 
Elementary Economics, Sees. 27, 33, 34, 36. 

(5) Hamilton, W. H., Current Economic Problems, pp. 449-451 
and Sees. 225, 227-230, 232-233, 235-236, 238-239, 244, 246. 

(6) Marshall, L. C, Readings in Industrial Society, Sec. 238. 
(8) Carlton, F. T., History and Problems of Organized Labor, 

Ch. XII. 



74 Elements of Economics 



Part V — Exchange 

CHAPTER XXVI— MONEY EXCHANGE 

.^ I. The Early History of Money (4) 445-450; (6) 313-314 

n. Establishment of Metallic Money (6) 320-323 
1. Sources of superiority of precious metals. 

a. Relative stability of value. 

b. High value for small bulk — portability. 

c. Durability. 

d. Malleability. 

e. Divisibility. 

f. Cognizability. 

ni. Meaning of Money (4) 443-444 

Money is any standardized instrument of general ac- 
ceptability passing freely from hand to hand, without 
endorsement, as a medium of exchange. 

IV. Money in Circulation in the United States (6) 323- 
324 

1. Kinds of money in United States. 

a. Coins. 

(1) Gold. (2) Silver. (3) Nickel. (4) Copper. 

b. Paper. 

(1) Gold certificates. (2) Silver certificates. (3) 
U. S. notes or "greenbacks." (4) Treasury notes of 
1890. (5) National bank notes. (6) Federal reserve 
bank notes. (7) Federal reserve notes. 

2. Security supporting each form of paper money. 

3. Redemption of United States money (4) 455. Gold 
constitutes the monetary standard of the United States. 
While legally not all kinds of money are redeemable in 
gold, actually all other kinds of money are directly or 
indirectly exchangeable for gold coin. What maintains 
the parity of all other kinds of money with gold is the 
fact that, directly or indirectly, all other kinds of money 
are exchangeable for gold. 



Monet Exchange 75 

4. Legal tender qualities of United States money (4) 456. 
Legal tender money is money which the law compels 
the creditor to receive at par in the settlement of 
debts. Silver certificates, national bank notes, federal 
reserve notes, and federal reserve bank notes are not 
legal tender. 

V. Forms of Money 

1. Standard money, which has been declared by law to 
be standard. Usually some commodity which has as 
much value for non-monetary as for monetary uses 
constitutes the standard money. Gold constitutes our 
standard money. Standard money must have unlimited 
coinage and full legal tender value. 

2. Fiduciary money, whose value depends in whole or in 
part upon the fact that it can be exchanged for other 
money, usually standard money. Minor coins and 
paper money are examples of fiduciary money. 

VI. Financial Uses of Gold (6) 315-316 

1. Standard of value. As a standard of value gold is the 
commodity by which the value of other goods is meas- 
ured, and in which it is expressed. 

2. Medium of exchange. 

3. Standard of deferred payments. 

4. Storehouse of value. 

5. Reserve supporting deposits and bank note circula- 
tion. 

VII. The Coinage of Money 

1. Nature and purpose of coinage. 

Coinage is the manufacture of metallic money units 
of certified weight and fineness. 

2. Amount of coinage. 

a. Free (unlimited). 

b. Limited. 

3. Charges for coinage. 

a. Gratuitous. 

b. Brassage. 

c. Seigniorage. 

VIII. The Problem of Bimetallism 
L Nature of bimetaUism. 



76 Elements op Economics 

2. Alleged advantages of bimetallism. 

The compensatory action of the double standard. 

3. Criticism of bimetallism. 

a. Assumptions of bimetallism. 

b. Operation of Gresham's law 

4. The bimetallic experience of the United States 
(4) 451-452. 

IX. The Problem of Paper Money 

1 . Nature of paper money. 

2. Dangers in the use of inconvertible paper money, and 
of paper money based upon only a partial reserve, as 
illustrated by 

a. The colonial experience with the continental cur- 
rency (4) 485-491. 

b. The southern experience with confederate money 
(4) 493-496. 

c. The experience of the United States with "green- 
backs." 

3. The possibility of fiat money. 

Fiat money is money which circulates solely because 
of the decree of the government, usually set forth in 
a law declaring the money full legal tender. Historically 
our nearest approach to fiat money has been irredeem- 
able money — intentionally irredeemable money. When 
people come to believe that fiduciarj^ money will never 
be redeemed, it becomes practically fiat money. 
X. The Role of Money in Economic Life (6) 316-319 

References 

(1) Ely, R. T., Outlines of Economics, Ch. XIV. 

(2) Carver, T. N., Principles of Political Economy, Ch. 
XXIV. 

(3) Clay, Henry, Economics for the General Reader, Ch. IX. 

(4) Marshall, Wright and Field, Materials for the Study of 
Elementary Economics, Sees. 125-127, 129-132, 142-145. 

(6) Marshall, L. C, Readings in Industrial Society, Sees. 88-89, 
113-119. 

Exercises 

lA. Construct a tabular form in which you give a column each 
to the following headings: Is it money? If money, by 
whom issued? To what amount is it legal tender for pri- 



Money Exchange 77 

vate debts? Is it a customary medium of exchange? Add 
a column at the extreme left of your form in which you list 
the following: Gold coins, gold bullion, silver dollars, pos- 
tal money order, subsidiary silver, five cent pieces, checks, 
gold certificate, silver certificate, bank draft, United 
States note, Treasury note of 1890, United States bond. 
National bank note, Federal Reserve note, postage stamp. 
Answer the four questions for each of the above in the 
spaces reserved for them in your form. 

2A. Suppose that under a bimetallic system the legal or mint 
ratio between silver and gold is fixed at 16 to 1, and that 
some time thereafter the market ratio becomes 18 to 1, 
which metal would be taken to the mint to be coined and 
which would be used in the payment of debts? State the 
law involved. 

3 A. Construct a tabular form in which you give a column to 
each of the following headings: What is its nature? By 
whom issued? What security supports it? To what amount 
legal tender? Add a column at the extreme left of your 
form in which you list the several kinds of paper money in 
circulation in the United States: Gold certificates, silver 
certificates. United States notes, Treasury notes of 1890, 
National bank notes. Federal reserve notes. Federal reserve 
bank notes. Answer the four questions for each of the 
above in the spaces reserved for them in your form. 



78 Elements of Economics 



CHAPTER XXVII— CREDIT AND BANKING 

li The Nature and Functions of Credit (6) 324-327 

II. The Nature of Credit Instruments (4) 499-500; 
(6) 334-340. 

1. Open accounts — book credit. 

2. Promises to pay, including such instruments as promis- 
sory notes, certificates of deposit, bank notes, govern- 
ment notes, bonds. 

3. Orders to pay. 

a. Checks. 

b. Commercial or trade bills of exchange, acceptances, 
or drafts. 

c. Bankers' bills of exchange or drafts. 

III. The Bases of Personal Credit (6) 327-328 

IV. The Conversion of Personal Credit into Bank Credit 

1. Its necessity. 

2. The process of discounting. 

V. Main Functions of Banks (6) 346-349 

1. Receiving deposits. 

a. Time deposits. 

b. Demand deposits. 

(1) Conducting checking accounts. 

2. Making loans and discounts. 

3. Buying and selhng domestic and foreign exchange. 

4. Issuance of circulating notes. 

This function is limited to National banks and Federal 
Reserve Banks. 

VI. Analysis of a Typical Bank Statement (4) 518-521 

1. The solvency of banks. 

2. The necessity of maintaining adequate cash reserves. 

VII. The Functions of the Clearing House (4) 503-507. 

VIII. Classes of American Banks (6) 349-350 
1. As to authorization by ^ . 

a. National charter. 



Credit and Banking 79 

(1) Federal reserve banks. 

(2) National banks. 

b. State charter. 

(1) State banks. 

(2) Loan and trust companies. 

(3) Savings banks. 

c. General state law. 
(1) Private. 

2. As to dominant type of business (6) 350-351. 

a. Investment banks. 

b. Commercial banks. 

IX. Defects of Our Banking Organization Before the 
Adoption or the Federal Reserve System 

1. Lack of system. 

2. Inelasticity of credit (5) 249-250. 

3. Inelasticity of currency. 

4. Uneconomical use of reserves and periodic local con- 
gestion of reserve funds 

5. Inadequate territorial distribution of banking facilities. 

6. Lack of provision for foreign banking. 

X. The Federal Reserve System (4) 539-545 

1. The organization of the system. 

a. The Federal Reserve Board. 

b. The Federal Advisory Council. 

c. The Federal Reserve Banks. 

(1) Government. 

(2) Sources and amount of capital stock. 

(3) Disposition of earnings. 

d. The Member Banks. 

2. Powers of the Federal Reserve Board. 

3. Duties of the Federal Advisory Council. 

4. Functions of the Federal Reserve Banks. 

a. To rediscount commercial paper. 

b. To issue notes. 

(1) Process. 

(2) Supporting security. 

(3) Provisions for retirement. 

c. To serve as reserve agent and custodian. 

d. To conduct clearings. 

6. To act as fiscal agent and depository for the U. S. 

government, 
f. To engage in "open market" operations. 



80 Elements of Economics 

5. Functions of member banks. 

a. The National banks. 

b. State banks. 

0. Services and future of the Federal Reserve Banking 
System. 

XL The Federal Farm Loan Banks 

References 

(1) Ely,^. T., Oiali7ies of Economics, Ch. XV. 

(2) Carver, T. N., Principles of Political Economy, Ch. XXV. 

(3) Clay, Henry, Economics for the General Reader, Ch. X. 

(4) Marshall, Wright and Field, Materials for the Study of 
Elementary Economics, Sees. 147, 148, 149, 150, 151, 153, 
159. 

(5) Hamilton, W. H., Current Economic Problems, Sees. 124, 
127, 128. 

(6) Marshall, L. C, Readings in Industrial Society, Sees. 120- 
125, 128-132, 329. 

Exercises 
lA. a. Construct a bank balance sheet from the following data: 

Capital stock $25,000 

Cash on hand 5,000 

Loans and Discounts 70,000 

Deposits 90,000 

Undivided profits 2,000 

Surplus 3,000 

Due from other banks 10,000 

Building and fixtures 15,000 

Bonds 12,000 

Mortgages 6,500 

Federal Reserve Bank stock 1,500 

b. If the payment of a 5% cash dividend is made, what 

changes must be made in this bank statement? Answer 

by putting corrected figures in parentheses after original 

figures in statement. 

2A. a. Construct a bank balance sheet from the following data: 

Capital stock. $ 250,000 

Cash 50,000 

Due from other banks 150,000 

Surplus 150,000 

Loans and discounts. . .• 1,250,000 



Credit and Banking ^1 

Buildings and fixtures 25,000 

Undivided profits 25,000 

U.S. Bonds 200,000 

Deposits 1,100,000 

Circulating notes outstanding 150,000 

b. If the bank discounts a note for $25,000 at 8% for 3 
months, paying $5,000 in cash, $10,000 by draft, and 
the remainder in deposit credit, what changes must be 
made in this bank statement? Answer by putting cor- 
rected figures in parentheses after original figures in state- 
ment. 
3A. a. Construct a bank balance sheet from the following data: 

Real estate ^ 30,000 

Surplus 30,000 

Deposits 283,000 

Loans and discounts 300,000 

Cash • 80,000 

Undivided profits 12,000 

Other assets 10,000 

Capital stock 100,000 

Bonds and stocks 80,000 

Circulating notes outstanding 75,000 

b. If the bank makes a new loan of $20,000 for two months 
at the discount rate of 6%, the proceeds being left on 
deposit, what changes must be made in the bank state- 
ment? Answer by putting corrected figures in parentheses 
after original figures in statement. 
4A. a. Construct a bank balance from the following data: 

U.S. bonds $100,000 

Building and fixtures 100,000 

Loans and discounts 560,000 

Undivided profits 40,000 

Surplus 45,000 

Deposits 700,000 

Cash 70,000 

Balance with Federal Reserve Bank 50,000 

Notes in circulation 60,000 

Due from other banks 65,000 

Capital 100,000 

b. To what extent does the bank profit if it takes a six 
months commercial note for $20,000 which it has dis- 
counted at 7% and rediscounts it with the Federal Reserve 



82 Elements of Economics 

Bank at 6%, taking deposit credit, after it has held the 
note for three months? Show by placing corrected figures 
in parentheses after the original figures, what changes 
must be made in the above statement upon completion 
of both transactions. 
c. Show any change which would have to be made in the 
original statement above, if the bank were to move from 
Madison to Chicago without affecting the total of assets 
and Habilities. 
5A. The Madko Concrete Products Company of Madison on 
March 1st, 1921, purchased cement from Conklin and Sons of 
Madison, dealers in Coal, Ice, Cement, etc. Unable to pay 
their bill at the expiration of thirty days, the Madko Com- 
pany gave a note for $10,000, dated April 1 and due three 
months after date, to Conklin and Sons, the note to bear 
interest after date on which due. 

Conklin and Sons are a depositor with the Commercial 
National Bank of Madison and pay all their bills with checks. 
The current rate of interest in Madison is seven per cent, 
although the Federal Reserve Bank of Chicago charges only 
six per cent on the same class of loans. 

a. In the event that Conklin and Sons are in sudden need of 
funds on May 1, show clearly just how they could use the 
Madko Concrete Products Company note to secure the 
needed funds, from whom they would probably be secured, 
and just how much they could secure. 

b. Show clearly how the assets and habihties of the bank 
would be affected by the above transaction. 

c. Show how the possession of the Madko Concrete Products 
Company note would enable the Commercial National 
Bank to increase its loaning power or its cash holdings in 
response to needs arising on June 1, 1921. 

d. On the basis of all above data, chart the journey taken by 
the Madko Concrete Products Company note, showing 
exactly what each party involved receives or pays and the 
final disposition of the note on July 1, 1921. 



Foreign Exchange 83 



CHAPTER XXVIII— FOREIGN EXCHANGE AND INTER- 
NATIONAL TRADE 

I. The Mechanism or Foreign Exchange (5) 275-277 

1. Nature of foreign exchange, 

2. The process of buying and selhng foreign exchange. 

3. The determination of the price or rate of foreign exchange 
under normal conditions. The price of foreign exchange 
like the market price of anything else is an expression of 
the interaction of the demand for and the supply of bills 
of exchange. Into the determination of the price of 
foreign exchange there normally enter three factors : 

a. Amount of pure gold in the monetary units to be 
exchanged. 

b. Cost of shipping gold. 

c. General credit conditions (4) 549-558. The actual 
rate of exchange between any two countries is deter- 
mined by the relations between the demand for and 
supply of foreign bills of exchange and these depend 
upon the trade and credit relations of the two coun- 
tries. Whatever, for instance, necessitates the transfer 
of funds from the United States to England is a source 
of demand for bills of exchange on London. These are 
wanted 

(1) To pay for merchandise imports. 

(2) To pay for securities purchased by us abroad. 

(3) To pay the interest and dividends on foreign 
capital invested here. 

(4) To pay maturing loans. 

(5) To pay for international services, e. g. transporta- 
tion, insurance, and the expenditures of American 
tourists and residents abroad. 

Whatever necessitates the transfer of funds from 
England to the United States is a source of supply of 
bills of exchange. These are sold 

(1) To collect for merchandise exports. 

(2) To collect the purchase price of securities sold by 
us abroad, the purchaser being drawn upon for the 
purchase price. 



84 Elements of Economics ' 

(3) To secure loans of foreign money in America, the 
lender being drawn upon for the amount of the 
loan. 

(4) To collect for international services rendered by 
Americans. 

4. Abnormal factors affecting price of foreign exchange. 

a. Depreciated foreign currencies. 

b. Speculation. 

II. The Reciprocal Nature of International Trade 
(5) 270-271 

III. The Advantages of International Trade: The Prin- 
ciple OF Comparative Costs (6) 243-244, 391-394 
If a country observes the principle of comparative costs in 
the development of its industries, it will produce for export 
those things in the production of which it enjoys the greatest 
comparative advantage or suffers the least comparative 
disadvantage. If a country wishes to adopt the comparative 
costs principle in production, it should devote itself to those 
industries in which its labor can be most effectively applied. 

References 
(1) Ely, R. T., Outlines of Economics, Ch. XVII. 

(3) Clay, Henry, Economics for the General Reader, Ch. XI, 
pp. 204-213. 

(4) Marshall, Wright and Field, Materials for the Study of 
Elementary Economics, Sees. 162-166, 168-169. 

(5) Hamilton, W. H., Current Economic Problems, Sees. 133, 136, 
139. 

(6) Marshall, L. C, Readings in Industrial Society, Sees. 90, 
147. 

(7) Escher, Franklin, Foreign Exchange Explained, Chs. I-VII. 

Exercises 

IR. Show how the following affect the price of sterling exchange 
in New York : 

a. Heavy imports of merchandise into the United States. 

b. A high interest rate in London in comparison with New 
York. 

c. The maturing of the bonds of American corporations 
held by British investors, the latter wanting their funds. 

d. Insurance payments to Lloyd's. 



Foreign Exchange 85 

e. A sale by the A. B. Dick Co. of New York of goods 
amounting to SI, 000, to L. Dock and Co. of London. 

f. The sale of English bonds in New York for the purpose 
of funding England's debt to the United States. 

2A, Assume that the labor costs are the real comparative costs. 
Waiving other considerations, if it takes 75 days' labor to 
produce a ton of tin in the United States and only 50 in 
England, and if it costs 25 days' labor to produce a ton of 
steel rails in the United States and 20 in England, would it 
pay for the United States to export or import steel rails? 
State the principle involved and show what ratio of exchange 
would be profitable to both countries. 

3A. Country A can produce pig iron at a cost of 20 day's labor 
per ton and broadcloth at a cost of 5 days' labor per yard. 
Country B can produce the iron at a cost of 15 days' labor 
and the cloth at a cost of 3 daj^s' labor. If the transportation 
anS all costs other than labor be ignored, will an exchange 
between these two countries be possible so far as these two 
commodities are concerned? If so, what ratio of exchange 
would be profitable to both countries? 

4 A. Assume that iron and cloth exchange for each other in 
proportion to their costs of production, and that the cost of 
producing a ton of iron in England is S16 and a yard of 
broadcloth is $4, while in the United States the cost of 
producing a ton of iron is $25 and a yard of broadcloth is 
$5, in which country would it be economically projQtable to 
specialize in the production of iron and in which in the 
production of broadcloth? At what ratio could England 
and the United States afford to exchange iron and broad- 
cloth? 

5R. Explain the old mercantilistic fallacy that there is necessarily 
something essentially favorable about an excess of merchan- 
dise exports over imports. 

6R. Discuss in as logical a way as possible the steps which, in 
your opinion, the United States must take in order to play 
a larger part in international trade after the war than before 
1914. 



86 Elements of Economics 



CHAPTER XXIX— PRICE INDEX NUMBERS 

I. The Need op Index Numbers 

If variations in the price of a single commodity are to be 
studied, an index nmnber is unnecessary. But if variations 
in the prices of many different goods are to be studied, index 
numbers are necessary. 

II Nature of Index Numbers 

1. Index numbers as the averages of relative prices. The 
index numbers most commonly used until recently were 
relative numbers in which data for a given period of 
time were taken, as a base, usually indicated as 100, 
upon which data for other periods of time were computed 
as percentages. Index numbers were usually simple or 
weighted arithmetic averages of such relative numbers. 
The Annalist's index number, based upon the wholesale 
prices of twenty-five food products chosen so as to 
represent a theoretical family's food budget, is a simple 
arithmetic average of relative prices, the base period 
being the average price of the ten years, 1890-1899. 

2. Averages or types used in the construction of index num- 
bers from relative prices. 

a. Arithmetic average. 

(1) Simple. 

(2) Weighted. 

b. Median — the item in a consecutively arranged series 
of items which divides the distribution of items into 
equal parts. 

c. Mode — the most frequently occurring item in a series. 

3. Index nimibers as the simis of prices per unit. 

a. Simple sums. 

b. Weighted sums. 

Bradstreet's index number of prices is a sum of actual 
prices of commodities reduced to a per-pound basis. 
The widely used index numbers of the U. S. Bureau of 
Labor Statistics have since 1914 been weighted sums of 
actual prices, reduced to a relative basis. 

III. Graphic Presentation op Index Numbers 



Price Index Numbers 87 

IV. Uses of Index Numbers 

"While index numbers have been largely restricted to price 
phenomena, this is by no means necessary. Any phenome- 
non extending over a period of time and expressed nmneri- 
cally may be put in this form, the only peculiarity being 
that its relative rather than its absolute aspect is exhibited. 
Index numbers of wages, of rents, of imports or exports, 
sales, or of any other phenomena may be constructed. . . . 

"The purpose of an index number is to reduce to a com- 
mon denominator the qualities of different factors or 
phenomena so as to allow comparison generally historically. 
It is to translate absolute into relative qualities in order that 
comparisons may be made." (8) 297. 

References 

(1) Ely, R. T., Outlines of Economics, Ch. XVI, pp. 337-342. 
(3) Clay, Henry, Economics for the General Reader, Ch. XI, pp. 
196-197. 

(7) King, W. I., Elements of Statistical Method, Ch. XV, pp. 
178-185. 

(8) Secrist, Horace, An Introduction to Statistical Methods, Chs. 
VIII-X. 

Exercise 

lA. Given the following data concerning food prices in Mil- 
waukee: 



Item 




Price 


Price 


Weii 




Dec. 


16, WIS 


Dec. 15, 1920 




Sirloin Steak 


(lb) 


$.24 


$.36 


1 


Ham 


(lb) 


.28 


.50 


2 


Milk 


(qt)'. 


.07 , 


.11 


2 


Butter 


(lb) 


.38 


.57 


2 


Eggs, Fresh 


(dz) 


.40 


.90 


3 


Bread 


(lb) 


.06 


.10 


4 


Potatoes 


(lb) 


.015 


.03 


3 


Sugar 


(lb) 


.05 


.10 


3 


Bananas 


(dz) 


.30 


.45 


1 


Coffee 


(lb) 


.27 


.36 


1 


Com Meal 


(lb) 


.03 


.06 


2 


Cheese 


(lb) 


.22 


.33 


1 


Rice 


(lb) 


.08 


.14 


2 



Elements of Economics 

a. Using the above data compute for each food item its 
relative price in 1920 making its price in 1913 the base. 
From these relative prices construct two index num- 
bers: (a) an index number based on the simple arith- 
metic average; (b) an index number based on the 
median. 

b. Is your index number based upon the simple arith- 
metic average a good index of food price changes in 
Milwaukee? In the U. S.? Of changes in the cost of 
Uving in Milwaukee and in the U. S.? State reasons 
in each case. 

c. Using the weights indicated above, construct a com- 
posite index number showing food price changes. Is 
this number any better than the unweighted index 
number? 



Price Changes 89 



CHAPTER XXX— PRICE CHANGES 

I. Meaning of the Price Level 

Changes in the general level of prices denote that gold, 
the measure of prices, like other goods, has its value; and 
that the value of gold changes like other values 

The general level of prices measures the value of gold 
— its power of exchange. The value of gold and the general 
price level are two aspects of the same fact: the exchange 
ratio of gold and goods. The higher the price level, the 
lower is the purchasing power of money and vice versa. 

The concept of the "general price level" is reached when 
we compare the price ratio of money to other goods at a 
given time with its ratio at some other time. These changes 
in the value relationship of goods and money are expressed 
by percentages called index numbers, the price in some year 
taken as a base being considered as 100. 

II. Facts in Regard to Price Changes 

III. Evils in Rapid Price Changes 

1. Inertia of fixed incomes in responding to price changes. 

2. Shrinkage of savings, 

3. Disturbance of long time contracts. 

4. Inertia of rates fixed by government. 

5. Accentuation of group conflict. 

IV. Causes of Changes in the General Level of Prices 
1. Changes in the supply of money and credit. 

Economists believing in the so-called quantity theory 
of money contend that the real cause of general price 
changes is changes in the supply of money and credit. 
They hold that prices rise and fall in direct proportion to 
changes in the quantity of money. Changes in the supply 
of money and credit take the form of 

a. Changes in the supply of gold. 

b. Changes in the supply of paper money. 

c. Changes in the volume of deposits subject to check. 
Other economists contend that the increase in money 

itself (except in the abnormal case of issuing government 



90 Elements of Economics 

paper money for the sake of temporarily procuring goods 
upon easier terms) is the result of more fundamental 
forces affecting the production and consumption of goods; 
that changes in the money supply are necessitated by 
changes in trade. 

2. Changes in production. 

3. Changes in consumption. 

V. Remedies Proposed for Stabilising Prices 

1. The bimetallic standard. 

2. Fiat money. 

3. The compensated dollar. 

4. Improved use of gold reserves with careful regulation 
of discount rates. 

References 
(1) Ely, R. T., Outlines of Economics, Ch. XVI, pp. 317-333. 

(3) Clay, Henry, Economics for the General Reader, Ch. XI, 
pp. 195-203. 

(4) Marshall, Wright and Field, Materials for the Study of 
Elementary Economics, Sees. 138, 139, 140. 

Exercise 
lA. The price level index number in the United States in 1918 
was 196; in 1920 it was 243. Show briefly the effect of this 
change on the following: 

a. Persons with incomes derived from long term bonds. 

b. Wage earners. 

c. Manufacturers with a three year supply of raw materials 
on hand in 1918. 



Economic Crises 91 



CHAPTER XXXI— ECONOMIC CRISES 

I. Nature and Kinds of Crises (5) 238-239 

1. Financial crisis — the culmination of an upward price 
movement, and a sudden fall of prices which greatly 
impairs or destroys the credit of many. The crisis may 
develop into a financial panic, consisting in a wild 
frightened scramble on the part of people to meet their 
financial obligations in a time of scarce credit. 

2. Industrial crisis (depression) — the period of hard times 
usually following a financial panic, characterized by 
business inactivity, slowing up or shutting down of pro- 
duction, unemployment. 

II. Periodicity of Crises 

"Crises are frequently recurring phenomena of current 
economic life." Attempts have been made to prove that 
they recur approximately every ten years. Leading crises jn 
American economic life occurred in 1817-18, 1825, 1837- 
39, 1857, 1873, 1884, 1893, 1903, 1907, 1914, 1920. 

III. The Course of a Business Cycle (5) 208-216; 225-232; 
(6) 492-494. 

1 The period of prosperity— expanding credit, great com- 
mercial activity. 

2. The period of the crisis. 

3. The period of depression. 

4. The recovery. 

IV. The Explanation of Crises 

Many interesting and suggestive explanations of crises 
have been offered. The most instructive of these emphasize 
over-speculation, over-investment, the maladjustment of 
capitalization and income. 

V. Some Remedies to Prevent and to Mitigate the Evils 
OF Crises (5) 196 

1. Elasticity of credit (5) 253-256. 

2. Elasticity of currency (5) 257-259. 

3. Regulation of speculation. 



92 Elements of Economics 

4. Regulation of investment. 

5. Stabilizing the dollar. 

6. Stability in tariff policy. 

7. Integration of industry. 

8. Provision for employment on public works. 

References 

(1) Ely, R. T., Outlines of Econoynics, Ch. XVI, pp. 333-336. 

(2) Carver, T. N., Principles of Political Economy, Ch. XXVII. 

(3) Clay, Henry, Economics for the General Reader, Ch. XIII. 

(5) Hamilton, W. H., Current Economic Problems, Sees. 100-101, 
106-108, 116, 119-123, 126-128. 

(6) Marshall L. C, Readings in Industrial Society, Sees. 185- 
187, 189. 

(7) Mitchell, W. C, Business Cycles, Ch. XIV. 

(8) Fetter, F. A., Modern Economic Problems, Ch. X. 



Marketing 93 



CHAPTER XXXII— MARKETING 

I. The Nature of Marketing 
II. Quality, as an Essential of Successful Marketing 

III. Standardization as an Aid in Marketing 

1. Standards for the measurement of quantity. 

2. Standards for the determination of quality. 
a. Use of brands and trade-marks. 

3. The functions of government in standardization. 

4. The economics of standardization. 

IV. Advertising and Salesmanship as Aids in Marketing 

1. Economic importance and cost from the individual 
point of view. 

2. Economic importance and cost from the social point of 
view. 

V. Special Difficulties in Agricultural Marketing 

1. The difficulties in securing cooperation among American 
farmers. 

2. The forms and growth of sellers' cooperation among 
American farmers. 

3 Economic advantages of cooperative selling. 
4. Governmental regulation of marketing. 

VI. Social Advantages of a Good Marketing System 

References 

(1) Ely, R. T., Outlines of Economics, Ch. XXIX, pp. 618-622. 

(2) Carver, T. N., Principles of Political Economy. Ch. XXVI. 



94 Elements op Economics 



CHAPTER XXXIII— ORGANIZED SPECULATION 

I. The Nature of Speculation (6) 474-475; 501-502 

1 . Distinction between the risk taking of investment and 
of speculation. 

2. Distinction between the risk taking of speculation and 
of gambling. 

II. Institutions for Organized Speculation (5) 176-178 

1. The board of trade (6) 260-265. 

2. The stock exchange (6) 354-355. 

The stock exchange provides facilities for three kinds 
of transactions : 

a. Investment (6) 266. 

b. Speculation (5) 166. 

c. Gambling. 

III. Analysis of Some of the Leading Items on the Finan- 
cial Pages of Newspapers and Financial Journals 

IV. Some Commonly L^sed Terms in Organized Specula- 
tion 

1. A Bull on the stock exchange or board of trade is one 
who buys in the expectation that prices will rise, or in 
order to effect such a rise, hoping later to sell at a still 
higher price. The bull's habit is to "toss up." 

2. A Bear on the stock exchange or board of trade is 
one who sells securities or commodities for future 
delivery, in the expectation that prices will fall and 
that he will be able to buy before the date of delivery 
at a lower price than the price at which he sold. The 
bear's habit is to "pull down." 

3. A Lamb is an outsider patronizing the exchange who 
has no real financial information or expert knowledge 
concerning the operations of the exchange. Some- 
times the "lambs" make a "haul"; frequently they are 
"fleeced." 

4. Long of Stock means that a person owns a given 
security. Bulls who buy for a rise in the market are 
"long of stock." 



Organized Specdlation 95 

5. Short of Stock means that a. person is without 
stock which he has sold for future delivery. Bears who 
sell in the expectation of a fall in the market are 
"short of stock." 

6. Selling Short means to sell securities or produce 
for future delivery that one does not own at present in 
the expectation that prices will fall. 

7. Shorts Rushing to Cover means that persons who 
have sold expecting a fall in the market find that prices 
are actually going up, and so they hurry to buy the 
securities or produce they have agreed to deliver, 
without taldng any further chances. 

8. Squeezing the Bear impHes that those who have 
securities or produce that the bear needs in order to 
live up to his sale contract, extract from him as much 
as possible for them. 

9. A CORNER exists when the bulls have bought up the 
available supply of securities or produce and can com- 
pel the bears to buy them from them at whatever price 
the bulls dictate. 

10. Futures are securities or produce bought or sold for 
future delivery. 

11. May Wheat is wheat bought and sold for delivery in 
the month of May 

12. Spot Price is the actual market price for goods de- 
livered at once. 

13. Opening Price is the price of any security or of pro- 
duce prevailing at the opening of business of the stock 
exchange or board of trade. 

14. Closing Price is the price of any security or of pro- 
duce, prevailing at the close of business of the stock 
exchange or board of trade on any given day. 

15. "Hedging may be defined as the practice of making 
two contracts at about the same time of an opposite, 
though corresponding nature — the one in the trade 
market, and the other in the speculative market." 
(6) 502-507. 

16. Dealing on Margin means speculating upon the 
basis of cash deposited with a stock broker to guarantee 
him against possible loss. The margin represents a 
partial payment, sufficiently large, however, to finance 
the transaction. A common margin is 10 points. 



96 Elements of Economics 

V. The Functions of Speculation 

1. The equalization of price fluctuations "between differ- 
ent points of time and between different markets." 

2. The transfer of risks to a "body of professional risk 
takers." 

VI. Evils in Speculation 

1. Frequent accentuation of price fluctuations. 

2. The promotion of gambling. 

VII. The Regulation of Organized Speculation (4) 391- 
396 

References 

(1) Ely, R. T., Outlines of Economics, pp. 622-625. 

(3) Clay, Henry, Economics for the General Reader, Ch. IV. 

(4) Marshall, Wright and Field, Materials for the Study of 
Elementary Economics, Sec. 106. 

(5) Hamilton, W. H., Current Economic Problems, Sees. 82-88. 

(6) Marshafl, L. C, Readings in Industrial Society, Sees. 97, 
99, 133, 134, 178-180, 192, 193. 



Insurance '-)'' 



CHAPTER XXXIV— INSURANCE 

I. The Causes of Economic Insecurity (5) 515-522; 
(6) 532-534. 

II. The Nature of Insurance as a Remedy for Insecur- 
ity (5) 522-523; (6) 499-501 

1 . Definition. Insurance is a business whose chief function 
is the assumption of risk by distributing among many 
the losses sustained at any given time by a few. 

"Insurance is an agreement to pay a certain sum 
of money to compensate for the loss resulting from some 
contingent event, in consideration of an immediate cash 
payment or a series of payments." (7) 1. 

2. Reasons for the productive character of insurance. 

3. Distinction between insurance and gambling. 

4. The scientific basis of insurance, 
a. The law of probabilities. 

III. The Chief Forms of Insurance 

1. Life. 

2. Fire. 

3. Casualty. 

4. Marine. 

5. Social. 

IV. Forms of Insurance Organization 

1. Stock companies. 

2. Mutual companies. 

a. Assessment companies. 

3. Mixed companies. 

V. Classification of Insurance Policies 

An insurance pohcy is a written contract between the, 
insurer and the insured, assuming many different forms, 
but whatever the details of the contract may be, containing 
a statement concerning the contingency on which the 
amount of the policy will be paid, stipulations concerning 
the premium, and the name of the beneficiary. Pohcies 
may be classified 



^ 98 Elements of Economics 

1. According to maturity. 

a. Ordinary life. 

b. Limited payment life. 

c. Term, 

d. Endowment. 

2. According to participation in the earnings of the com- 
pany. 

a. Participating. 

b. Non-participating. 

3. According to premimn plan. 

a. Natural premium or step rate plan. Under the 
natural premium plan the insured pays each year 
the cost of the deaths for*that year proportioned 
according to the probability of dying at the age 
of the insured. It means an annually increasing 
premium. 

b. Level premium plan, the same annual payment being 
made throughout the life of the policy. 

(1) Necessity of maintaining a reserve. 

VL Sources of Surplus in the Insurance Business 
• 1. Savings from mortaUty. 

2. Savings from interest. 

3. Savings from loading. 

4. Gains from the surrender and lapse of policies. 

VII. Possibility of Government Insurance 

1. The Wisconsin experiment. 

2. Experience of the U. S. Government in providing 
insurance for its soldiers and sailors — Act of 1917. 

VIII. Government Regulation of Insurance 
L Need of regulation. 
2. Means of regulation. 

References 
(1) Ely, R. T., Outlines of Economics, Ch. XXVIII. 

(5) Hamilton, W. H., Current Economic Problems, Sees. 254- 

256. 

(6) Marshall, L. C, Readings in Industrial Society, Sees. 135, 

191. 

(7) Gephart, W. F., Principles of Insurance. 



Transportation 99 



CHAPTER XXXV— TRANSPORTATION 

I. The Development of Transportation in the United 
States 

1. The turnpike period. 

2. The river and canal period. 

3. The railway period. 

a. The stage of experimentation. 

b. The stage of linear consoUdation. 

c. The stage of severe competition. 

d. The stage of combination and regulation. 

II. Bases of Public Interest in the Railway Industry 

1. The peculiar dependence of public welfare upon the 
railway industry, it being a natural monopol3^ 

2. The exercise of the right of eminent domain for the 
railways. 

3. The subsidization of the railways. 

a. Kinds. 

(1) Land. 

(2) Money. 

(3) Privileges. 

b. Reasons. 

III. Some Economic Characteristics of the Railway In- 
dustry (5) 348-351 

1. The relative importance of capital. 

2. The importance of the principle of decreasing costs. 

3. The importance of the principle of joint costs. 

4. A natural monopoly. 

IV. Kinds of Railway Service 

1. The freight service (7) 147-180. 

2. The passenger service (7) 181-205. 

3. The express service (7) 206-222. 

4. The mail service (7) 223-239. 

V. Classification of Railway Expenditures 
1. Operating expenses. 

a. Maintenance of way and structure. 

b. Maintenance of equipment. 



100 Elements of Economics 

c. Traffic. 

d. Transportation — rail line. 

e. Transportation — water line. 

f. Miscellaneous operations. 

g. General. 

h. Transportation for investment — credit. 
2. Fixed expenses. 

Under fixed expenses are included such payments as 
the interest on funded and floating debts, rentals, taxes, 
various sinking fund reserves, etc. 

VI. Sources of Railway Revenues 

1. Operating revenues. 

2. Non-operating income. 

VII. Theory of Freight Rates and Passenger Fares 

1. The principle of basing charges upon the cost of the 
service (4) 286-288. 

a. Various meanings of "cost of service," 

(1) It may mean all expenses properly chargeable 
against the service including both operating 

" expenses and fixed charges. 

(2) It may mean only the expense incurred in using 
the plant to perform a given service, thus exclud- 
ing fixed charges. 

(3) It may mean merely the additional expense bf 
performing the given service, assuming the plant 
already to be in operation. 

b. Difficulties in the determination of the cost of the 
service (5) 374-376. Most railway expenditures are 
"joint costs." 

c. Progress made in the determination of the cost of the 
service through accurate system of cost accounting, 
although it is doubtful whether much more than 
seventy-five per cent of the cost of the service 
can be accurately determined. 

d. Some factors to consider in the determination of the 
cost of the service. 

(1) Value of railway property. Physical valuation 

- of railway property is of help in determining the 

fixed capital costs. But of the total costs of 

railway service, only about twenty per cent are 

fixed costs. 



Transportation 101 

(2) Distance or length of the haul as element in the 
determination of relative rates. It is not to be 
assumed that cost of service is directly propor- 
tional to the distance a commodity or person is 
carried. 

(3) Weight and character of freight consignment. 
But cost of service is not directly proportional 
to the weight of the commodity. 

(4) Density of traffic as an element in the determina- 
tion of relative rates. 

2. The principle of "charging what the traffic will bear." 
This has been the great guiding consideration in the 
past in the rate making policy of our American railway 
managers. Roughly it has been measured by the 

a. Value of the service. 

b. Value of the commodity. 

3. The principle of the "developmental" rate. 

VIII. Practical Aspects of Rate Making 

1. The establishment of the freight classification (5) 370- 
372. 

2. The establishment of the freight tariff (5) 370-372. 

3. Some factors affecting the determination of freight 
rates. 

a. The competition of other roads and routes. 

b. The competition among industries and among mar- 
kets (5) 372-374; (6) 907-911. 

What the shipper can afford to pay so that his in- 
dustry may develop and the traffic of the carrier 
increase is of great importance. The general freight 
agent, or freight traffic manager, or whoever is 
ultimately charged with the responsibility of estab- 
lishing the rate, must be an expert in formulating a 
judgment concerning what "charges the traffic will 
bear." 

c. The carrier's need of revenue to meet financial obli- 
gations. 

d. The regulations of government. 

IX. The Complaints Against the Railways 

Among the more important complaints against the rail- 
ways which eventually led to the establishment of govern- 
ment control were the following: 



102 Elements of Economics 

1. Unreasonably high rates based upon the principle of 
charging what the traffic will bear. 

2. The pooling of earnings or traffic. 

3. Discrimination between commodities. 

4. Discrimination between places — "the long and short 
haul" abuse. 

5. Discrimination between individuals, the abuse of re- 
bating. 

6. The issuance of passes to favored individuals. 

7. Overcapitalization. 

X. Legislation Establishing Railway Regulation 

1. The Interstate Commerce Act of 1887 (4) 274-285; 

(5) 365-366. 

2. The Elkins Act of 1903 (5) 366-367. 

3. The Hepburn Act of 1906 (5) 367-369. 

4. The Mann-Elkins Act of 1910 (5) 369-370. 

5. The Clayton Act of 1914. 

6. The Esch-Cummins Act of 1920. 

XI. Administrative Agencies for Regulation of Rail- 
ways 

1. The Interstate Commerce Commission. 

2. State public utility commissions (4) 291-299. 

XII. The Experience of the Federal Railway Administra- 
tion 

XIII. The Problem of Government Ownership of the Rail- 
ways (5) 388-394 

XIV. Scope op the Field of Public Utilities 

References 
(1) Ely, R. T., Outlines of Economics, Ch. XXVII. 

(4) Marshall, Wright and Field, Materials for the Study of 
Elementary Economics, Sees. 76, 79-81, 83. 

(5) Hamilton, W. H., Curreni Economic Problems, Sees. 175- 
198. 

(6) Marshall, L. C, Readings in Industrial Society, Sees. 291, 
342, 343. 

(7) Johnson and Van Metre, Principles of Railroad Transporta- 
tion. 



Nature and Laws of Consumption 103 



Part VI — Consumption 

CHAPTER XXXVI— THE NATURE AND LAWS OF CON- 
SUMPTION 

I. The Meaning of Consumption 

1. Final consumption means the use of goods in the direct 
satisfaction of human wants. 

2. Harmful consumption means that use of goods in the 
direct satisfaction of human wants which lowers the 
efficiency of the consumer. 

3. Destructive consumption is that form of consumption in 
which the satisfaction derived is insignificant when com- 
pared with other uses that could be obtained from the 
goods. Nero's burning of Rome, whatever the utility it 
may have conferred, was destructive consumption. Some 
luxuries are consumed so wastefuUy that their consump- 
tion amounts to destructive consumption. 

II. The Economic Importance of Consumption 

1. Effect of consumption upon rent. 

2. Effect of consumption upon wages. 

3. Effect of consumption upon interest. 

4. Effect of consumption upon national prosperity. 

III. The Laws of Consumption 

1. Laws based on the psychology of want satisfaction. 

a. The law of diminishing gratification. The gratifica- 
tion received from the consumption of a unit of a good 
decreases as one consumes successive units of it 
(4) 23-24. 

b. The law of the estimation of the utility of future goods. 
"The present estimation of the utility of a future good 
is less than the present estimation of the utihty of a 
present good, assuming no change in either quantity 
or quality of the good" (4) 25-26. 

c. The law of variety in consumption. The maximum 
gratification may be derived from consumption by 
observing variety in the goods consumed. This law 



104 Elements of Economics 

is a corollary of the law of diminishing gratification 

(7) 74-75. 
(1. The law of harmony in consumption. The pleasures 

of consumption may be enhanced by harmony in the 

goods consumed (7) 75. 
2. Law based on the statistics of expenditure^Engel's law 
applied to American conditions. 

a. As income increases, the percentage of it expended for 
(1) food, (2) fuel and light decreases. 

b. As income increases, the percentage of it expended 
for clothing and sundries increases. 

c. As income increases, the percentage of it expended for 
housing remains about constant. 

IV. The Economic Order of Consumption (4) 24-25. 
1 . Maintenance of the margin of consumption. 

References 

(1) Ely, R. T., Outlines of Economics, Ch. IX, pp. 132-133, 
139-142, 144-146. 

(2) Carver, T. N., Principles of Political Economy, Ch. 
XXXVIII. 

(4) Marshall, Wright and Field, Materials for the Study of 
Elementary Economics, Sees. 6-7. 

(6) Marshall, L. C, Readings in Industrial Society, Sees. 320- 
324. 

(7) Seager, H. R., Principles of Economics, pp. 74-75. 

Exercises 
lA. Assume that an individual estimates his present wants as 
fairly represented on some scale of his own devising by the 
figures 100, 95, 90, 80, 50, 45, 25, and the present value of 
future wants on the same scale by the figures 85, 75, 60, 
55, 20, 15, 10. Suppose that he has $14.00 to spend as he 
pleases for present or future wants, and that each of the 
above fourteen wants can be satisfied with the expenditure 
of $1.00. How many dollars will he lay aside for future 
wants? 
2 A. A student has $5.00 to spend. He estimates his units of 
gratification by spending 

$4.00 for theatre tickets for next week at 48; 
3 . 00 for a drive next week at 25 ; 
1 .00 for meals today at 15; 



Nature and Laws of Consumption lOo 

5 . 00 for a hat today at 40; 
4 . 00 for a book today at 50. 
The estimates in all cases represent the equivalent of 
present gratifications. What disposition will he make of his 
money? 

3 A. An American family having an income of $3,000 a year 
spends it all in the following way: Food, S675; Fuel and 
light, $225; Rent, $900; Clothing, $450; Sundries, $750. 
Upon the basis of Engel's law of expenditure as modified for 
American conditions, calculate the approximate expenditure 
for each of the above items, if the income is reduced to 
$2,000, assuming that the entire income is spent. 

4A. If an American spending all his $3000 income spends $1000 
for food, $300 for fuel and light, $500 for clothing, $600 for 
rent, $600 for sundries, what will be the percentage distribu- 
tion of his expenditures when his income is $2000, assuming 
Engel's law as applied to American conditions to be true? 



106 Elements of Economics 



CHAPTER XXXVII— SOCIAL INFLUENCE AND CON- 
TROL OVER CONSUMPTION 

I. Kinds of Consumption Goods (2) 472-476 
1. Necessities. 
2 Comforts. 

3. Decencies. 

4. Luxuries. 

II. The Problem of Luxury 

1. Nature of luxury. 

To say that luxury is "excessive personal consumption" 

(1) 143, is immediately to raise the question, when is 
consumption excessive? It is impossible to define luxury 
to the satisfaction of all, simply because there is no 
unanimity of opinion as to what constitutes the excessive 
or superfluous in consumption. As long as there are 
different social classes, we may always expect different 
conceptions of luxury. It is the person and the time 
and not the specific character of the good that makes a 
good a luxury or a necessity. Luxury is a relative con- 
cept — relative to person and time. Things that were 
once luxuries to some may in time become necessities to 
them and even to all. The war, on the other hand, 
showed how things once regarded as necessities were 
again placed in the class of luxuries. 

2. AUeged justifications. 

a. People may do with their money what they please. 

b. As expenditures for luxuries put money into circula- 
tion and make work for people, they are socially 
desirable. 

3. Real justifications. 

III. The Nature of Rational Consumption (2) 461-471. 

IV. Social Control over Consumption 

1. Sumptuary legislation. 

2. Forms of control over consumption during the war. 

3. Necessity of controlUng consumption during the war 

(2) 514-528. 



Social Control Over Constimption 107 

References 

(1) Ely, R. T., Outlines of Economics, Ch. IX, pp. 143-144. 

(2) Carver, T. N., Principles of Political Economy, Chs. XXXIX, 
XL, XLI, XLII, XLIV. 



108 Elements of Economics 



CHAPTER XXXVIII— SAVING AND INVESTMENT 

I. The Relation of Consumption to Production to Insure 
Economic Progress (2) 455-458 

II. The Relation of Consumption to Saving 

1. The desirability of securing- a surplus. 

2. Aspects of saving. 

a. Saving as conservation. 

b. Saving as postponement of consumjition. 

3. Conditions of saving. 

a. Development of foresight. 

b. Existence of a surplus. 

c. Existence of durable goods. 

d. Establishment of savings institutions and the multi- 
plication of investment opportunities. 

e. Existence of a stable government. 

4. Need of saving in war and peace. 

III. Forms of Investment. 

References 

(1) Ely, R. T., Outlines of Economics, Ch. IX, pp. 142-143. 

(2) Carver, T. N., Principles of Political Economy, Ch. 
XXXVIII, pp. 455-458. 

(3) Clay, Henry, Economics for the General Reader, Ch. XII, 
pp. 221-223. 



SotTKCEs OF Public Revenue 109 



Part VII — Public Finance 

CHAPTER XXXIX— THE SOURCES OF PUBLIC 
REVENUE 

I. Public Loans 

1. The facts concerning the increasing use of pubhc credit 
as a means of raising funds for governmental purposes. 

2. The justification of resorting to government loans. 

a. To provide for the extraordinary expenditures of some 
emergency such as war. 

b. To provide for pubhc works — "investments on capital 
account." 

3. The amount of the public debt of the leading nations 
of the world, absolutely and in relation to their national 
wealth. 

a. Pre-war indebtedness (4) 841-846. 

b. War indebtedness. 

4. The relation between loans and taxes. 

II. Public Domain 

1. The historical significance of the public domain as a 
source of revenue. 

2. The land policy of the United States as to 

a. Agricultural land. 

b. Forest land. 

c. Mineral land. 

d. Water powers. 

III. Public Industries — Public Prices 

1 . Classification of public industries as to governmental pur- 
pose therein. 

a. Discouragement of consumption. 

b. Regulation. 

c. Public service. 

d. Revenue. 

2. Basis of charges for the products or sei'vices of public 
industries, 

IV. Fees 

1. Nature. A fee is a payment required from a person to 
defray in part or whole the expense of a special service 



110 Elements op Economics 

rendered him by the government. The service is less 
dominantly commercial than in the case of the pubhc 
price. University fees, court fees, sheriff's fees are 
illustrations. 

2. Advantages of the fee system. 

3. Evils in the fee system. 

4. Remedies for the evils. 

V. Special Assessments 

1. Nature. Special assessments are compulsory contribu- 
tions ''levied in proportion to the special benefits derived, 
to defray the cost of a specific improvement to property, 
undertaken in the public interest " e. g., street improve- 
ment assessments. 

2. Advantages of a system of special assessments. 

3. Evils in special assessments. 

4. Remedies for the evils. 

VI. Taxation (See Chapter XL). 

References 
(1) Ely, R. T., Outlines of Economics, Chs. XXXII, XXXIII, 

pp. 689-694. 
(4) Marshall, Wright and Field, Materials for the Study of 

Elementary Economics, Sees. 241-244. 



Taxation m 



CHAPTER XL— TAXATION 

I. The Importance of Taxation as a Public Question 
Taxation is not only a source of public revenue, but a 
factor in the distribution of wealth, and so the controversial 
center of much actual and proposed reform legislation 
(5) 690-691. 

II. Nature of Taxation 

A tax is a general compulsory contribution of wealth, 
exacted by public authority according to some general 
rule, and levied without reference to the special benefits 
which the contributors may derive from the pubhc pur- 
pose for which the revenue is required (1) 690. The 
absence of a quid pro quo distinguishes taxes from public 
prices, fees, and special assessments. 

III. Standards of Justice in Bearing the Burden of Taxa- 
tion 

1. The principle of benefits received (5) 697-698. 

2. Principle of ability to pay (5) 698. 

a. Bases of abihty to pay. 

(1) Property. 

(2) Income. 

(3) Outgo or consmnption. 

b. Variations in the ability to bear the burden of 
taxation. 

(1) Proportional taxation. A proportional tax is 
one which levies a uniform percentage upon all 
income or property, regardless of amount. 

(2) Progressive taxation. A progressive tax is one, 
the percentage of which increases upon additional 
income or property, at a constant or progressive 
rate. 

(3) Regressive taxation. A regressive tax is one, 
the percentage of which diminishes at a constant, 
increasing, or decreasing rate as the amount of 
taxable property or income increases. 

(4) Degressive taxation. A degressive tax is one, 
the percentage of which increases 'as income or 



1 12 Elements of Economics 

property increases but at a diminishing rate and 
approaching a hmit. 

IV. The Shifting and Incidence of Taxes (5) 699-706 

1. Nature of shifting. Shifting means passing on the 
burden of the tax, e. g., the duty on tea is shifted by the 
importer to the consumer. 

2. Nature of incidence. By the incidence of a tax is meant 
the final location of the burden of the tax. 

V. Criteria of Good Taxes (5) 696-697 

1. Uniformity. 

2. Certainty. 

3. Convenience. 

4. SimpHcity. 

5. Economy. 

6. Justice. 

VI. Income Taxes, Personal and Corporate 

1. Nature of the income tax. 

2. History of federal income taxation. 

3. Provisions of the federal income tax law as amended in 
1918 and 1921. 

4. Importance for state and federal revenue. 

5. Merits of the income tax. 

6. Difficulties in the income tax. 

VII. Property Taxes 

1. General property tax (4) 860-862. 

a. Importance. 

b. Faults of the general property tax (5) 706-708. 

c. Reforms. 

2. Personal property tax. 

VIII. Consumption Taxes and Taxes on Expenditures 

1. Tax on beverages. 

2. Tax on cigars and tobacco. 

3. Excise taxes, including so-called "luxury taxes." 

a. Advantages. 

b. Defects. 

IX. Business and Transaction Taxes 

1. Business license taxes. 

2. Transaction taxes — the stamp taxes. 



Taxation 113 

X. Customs Duties 

1. Kinds. 

2. Importance for federal revenue. 

3. Extent to which the foreign exporter can be made to 

pay the duty (5) 704-706. 

4. Merits of customs duties. 

5. Defects of customs duties. 

XI. Inheritance Taxes 

1 . Nature. Most inheritance tax laws contain the follow- 
ing provisions: 

a. The separate legacy rather than the estate as a whole 
is taxed. 

b. Legacies to relatives in the direct line are taxed at a 
lower rate than legacies to collateral relatives. 

c. Legacies below a stipulated minimum are exempt 
from taxation. 

d. Progressive rates of taxation are imposed. 

2. Importance for state and federal revenue. 

3. Merits of the inheritance tax. 

4. Problems raised by inheritance taxation in the U. S. 

References 

(1) Ely, R. T., Outlines of Economics, Ch. XXXIV. 

(2) Carver, T. N., Principles of Political Economy, Ch. 
XLIII. 

(4) Marshall, Wright and Field, Materials for the Study of 
Elementary Economics, Sees. 246, 247, 249-253. 

(5) Hamilton, W. H., Current Economic Problems, Sees. 340- 
345. 



114 Elements of Economics 



CHAPTER XLI— PUBLIC EXPENDITURES 

I. Nature of Public Finance 

"Public finance deals with the revenues of government, with 
their expenditure, and their administration." 

II. Distinctive Characteristics of a Public in Contrast 
WITH A Private Economy 

1. Relative elasticity of public revenues and relative in- 

elasticity of public expenditures. 

2. Perpetuity of the state. 

3. Inclusive aim of public expenditures. 

III. The Growth in Public Expenditures (4) 824-828 

1 . Absolute and relative amount of public expenditures in- 
the United States in 1913. 

2. Reasons for the growth in public expenditures. 

3. Proper proportion between the total income of society 
and public expenditiu-es. 

a, Wagner's rule. 

4. Pohcies concerning public expenditures. 

a. The pohcy of extravagance. 

b. The policy of parsimony. 

c. The poHcy of frugahty. 

d. The policy of economy. 

Good government comes high but it is worth it. 

IV. The Development of Public Expenditures 

1. As to historical sequence — reasons. 

a. External security. 

b. Internal security. 

c. Promotion of material interests. 

d. Benevolence. 

e. Education. 

f. Labor. 

2. As to regularity and irregularity — reasons. 



Public Expenditures 116 



References 



(1) Ely, R. T., Outlines of Economics, Ch. XXXI. 

(4) Marshall, Wright and Field, Materials for the Study of 
Elementary Economics, Sees. 238, 239. 

(5) Hamilton, W. H., Current Economic Problems, Sec. 337. 



116 Elements of Economics 

Part VIII — Economic Policies 
CHAPTER XLII— NATIONAL ECONOMIC POLICIES 

I. The Changing Economic Policies of Government 

1. The policy of mercantilism. 

2. The policy of laissez-faire. 

3. The policy of goverimient control. 

II. Important Mercantilistic Doctrines 

1. Emphasis upon nationalism. 

2. Importance of the precious metals. 

3. Encouragement of foreign trade. 

a. Import duties and export bounties. 

b. Colonization. 

c. Estabhshment of great trading companies. 

d. Commercial treaties. 

4. Doctrine of a favorable balance of trade. 

5. Encouragement of manufactures. 

a. Desirability of cheap raw materials. 

b. Desirability of cheap foodstuffs. 

c. Desirability of large population. 

6. Encouragement of the shipping industry. 

III. The Reaction Against Mercantilism and the Transi- 
tion TO Laissez-Faire (6) 1021-1022, 1032-1034. 

IV. Leading Principles in the Laissez-Faire Policy 

1. Natural laws and rights (5) 90-91; (6) 1026-1032. 

2. Individual liberty (5) 98-103. 

3. Enlightened self-interest (5) 91-95. 

4. Free competition (6) 939-940. 

V. Reasons for the Strong Hold of the Laissez-Faire 
Policy in the United States (6) 1034-1036 

1. Reaction against the economic and pohtical oppression 
prevaihng'lin European countries ^from which early 
American settlers came. 

2. Militant individualism of the American settler. . 

3. Universality of opportunity prevailing in a new country. 

4. Fluidity of classes. 



NATiONAii Economic Policies 117 

VI. Some Characteristic Expressions and Results op 
THE Laissez-Faire Policy in American Life (6) 1031- 
1032 
The days of individualism in industry and business. 

VII. The Reaction Against Laissez-Faire and the Transi- 
tion TO Government Control (5) 105-107, 118-120; (6) 
1044-1049 

VIII. Earlier Versus Modern Conceptions of the Relation 
OF Government to Business and Industry (6) 1036- 
1037, 1050-1057 

References ^ 

(1) Ely, R. T., Outlines of Economics, pp. 42-43, 744. 
(3) Clay, Henry, Economics for the General Reader, Ch. XXI, 
355-360. 

(5) Hamilton, W. H., Current Economic Problems, Sees. 19, 
41-45, 48-51, 57. 

(6) Marshall, L. C, Readings in Industrial Society, Sees. 358, 
390-397. 



118 Elements of Economics 



CHAPTER XLIII— THE POLICY OF GOVERNMENT CON- 
TROL 

I. Purpose of Government Control 

To the more distinctly political functions of government 
have been added many economic functions and particularly 
regulatory powers over various economic activities. 

Among the more important phases of economic Ufe sub- 
ject to government control, together with representative 
regulatory bodies, are the following: 

n. Control of the Public Utilities of Transportation 
and Communication 
L Interstate Commerce Commission. 
2. State Public Utility Commissions. 

III. Control of Banking and Finance 

1. Federal Reserve Bank Board. 

2. Federal Farm Loan Board. 

3. State banking commissioners. 

4. War Finance Corporation. 

IV. Control of Industry 

L State industrial commissions. 

V. Control of Foreign Trade 

VI. Control of Combinations 

1. Legal doctrines in regard to combinations. 

a. Common law doctrine prohibiting partnerships of 
partnerships. 

b. Common law doctrine prohibiting unreasonable re- 
straint of trade. 

c. Statute law doctrine of restraint of trade. 

2. Sherman Anti-Trust Act of 1890. 

a. Provisions (4) 334-335; (5) 433^34, 437-441; 
(6) 777-778. 

b. Important prosecutions under the Act (5) 435-437. 

3. Federal Trade Commission Act of 1914 (4) 336-337; 
(6) 778-779. 

• a. Organization of the Commission. 



PoLicT OF Government Control 119 

b. Functions of the Commission. 

(1) Functions of investigation and recommendation. 

(2) Functions of a quasi-judicial character, including 
particularly the function of prohibiting unfair 
methods of competition (6) 743-748. 

4. Clayton Anti-Trust Act of 1914 (4) 337-339; (5) 441-443; 
(6) 779-781. 

In general the Clayton Anti-Trust Act may be said to 
have two great purposes: 

a. To check certain undesirable practices found among 
industrial combinations, railways, and banking insti- 
tutions, whose effect is substantially to lessen com- 
petition. 

b. To improve the status of labor organizations in 
"lawfully and carefully carrying out the legitimate 
objects thereof." 

References 

(1) Ely, R. T., Outlines of Economics, Ch. XIII, pp. 230-246, 

(3) Clay, Henry, Economics for the General Reader, Ch. XXI. 
pp. 360-365. 

(4) Marshall, Wright and Field, Materials for the Study of 
Elementary Economics, Sees. 92, 93 

(5) Hamilton, W. H., Current Economic Problems, Sees. 52, 54, 
58, 213-221. 

(6) Marshall, L. C, Readings in Industrial Society, Sees. 175, 
233, 292-293, 295-297, 299, 304, 306-308, 349, 350, 387, 
389, 398-401, 404, 407. 



120 Elements of Economics 



CHAPTER XLIV— INTERNATIONAL ECONOMIC 
POLICIES 

I. International Economic Rivalry 
II. Use of Tariffs to Control World Trade 

III. The Arguments for Protection together with Their 
Historical and Present Validity as Applied to the 
United States 

1. Promotion of nationalism. 

2. Protection of infant industries (5) 298-30L 

3. Development of the industrial independence so desirable 
in the event of war (5) 307-309. 

4. Development of the home market (4) 590-591. 

5. Defense against "dumping." 

6. Protection of the wages of labor. 

7. Balance-of -trade argument. 

IV. The Argument for Free Trade together with its 
Historical and Present Validity as Applied to the 
United States (4) 597-608; (5) 273-275 

1 . The comparative costs argument. The free trader argues 
that the existence of a system of free trade wiU make it 
possible for every nation to develop itseK through in- 
dustries in which its labor can be most effectively applied 
and for which it has the greatest natural aptitudes. 
He contends that the free trade system will make pos- 
sible the greatest international division of labor. 

a. Economic aspects of the comparative costs argument. 

b. Political aspects of the comparative costs argument. 

V. Tariff Policies of the United States (4) 578-584; 
(5) 313-318. 

VI. The Permanent Non-P artisan Tariff Commission 

1. Its organization. 

2. Its functions. 

3. Its probable developments. 

VII. Growth of Combinations, Industrial and Financial, 
FOR the Development of Foreign Trade 



iNTEBNATIONAIi ECONOMIC POLICIEB 121 

References 

(1) Ely, R. T., Outlines of Economics, Ch. XVIII. 

(2) Carver, T. N., Principles of Political Economy, Chs. 
XXVIII, XXIX. 

(4) Marshall, Wright and Field, Materials for the Study of 
Elementary Economics, Sees. 171, 174, 177. 

(5) Hamilton, W. H., Current Economic Problems, Sees. 135, 
149-164, 170-172. 



122 Elements op Economics 



CHAPTER XLV— DISTINCTIVE FEATURES AND 

ASSUMPTIONS OF THE PRESENT ECONOMIC 

SYSTEM 

I. Some Fundamental Institutions of the Present 
Economic System 

1. Private property. 

a. Nature (6) 950-957. 

b. Basis (6) 959-962. 

c. Services (6) 963-968. 

d. Criticism (6) 968-971. 

e. Future development (6) 980-983. 

2. Inheritance. 

3. Contract. 

4. Vested interests or rights. 

5. Personal freedom. 

a. Freedom of person. 

b. Freedom of movement. 

c. Freedom of occupation. 

d. Freedom of association. 

e. Freedom of consmnption. 

f. Freedom of production. 

II. Some Fundamental Forces of the Present Economk. 
System 

1. Competition, 

a. Meaning (6) 890-893. 

b. Chief forms of economic competition (6) 894-897. 

2. Custom. 

3. Monopoly. 

4. Public authority. 

III. Some Fundamental Assumptions of the Present 
Economic System (3) 370-388 

1. The adequacy of seK-interest. 

2. "The assumption that competition leads to the survival 
of the fittest." 

3. "The assumption that wealth will be associated with 
social service." 

4. "The assumption that market value is a satisfactoiy 
indicator for production to follow." 



Features of Present Economic System 123 

REFEREisrCES 

(1) Ely, R. T., Outlines of Elements of Economics, Ch. II. 
(3) Clay, Henry, Economics for the Genera' Header, Chs. XXI 
pp. 355-365; XXII. 

(5) Hamilton, W. H., Current Economic Problems, Sees. 67-74, 
320-331. 

(6) Marehall, L. C, Readings in Industrial Society, Sees. 336- 
339, 362-370, 374. 



124 Elements of Economic* 



CHAPTER XLVI— SOCIALISM AND OTHER, PLANS 
FOR SOCIAL RECONSTRUCTION 

The term "Socialism" is properly applied to three things; 
(1) to a possible organization of society; (2) to a body of principles 
or theories; (3) to a political movement. The movement is based 
upon sociaHstic principles and has as its objective the attainment 
of the socialistic state. 

I — The Socialistic State 

I. Nature of Socialism as a Possible Future Organiza- 
tion OF Society (5) 752-757; (6) 36-41, 614-616 

1. Socialization of the most important material instruments 
of production. Not all capital goods would be socialized, 
but for the most part private property in capital goods 
would be abolished; the ownership of small scale capitalis- 
tic enterprises in which there could be no possibility of 
exploiting labor might be left in private hands. 

2. Management of production by society. 

3. Distribution of social income by society. Various bases 
of distribution have been suggested including (a) me- 
chanical equality, (b) need, (c) sacrifice, (d) productivity. 

4. Retention of private property in consumption goods. 

II. Conceivable Ways for the Acquisition of the Collec- 
tive Ownership of Industry (5) 769-770 

1. Voluntary bestowal. 

2. Socialization with pensioning of the present owners. 

3. Governmental competition forcing private enterprise 
from the field. 

4. Confiscatory taxation. 

5. Confiscation. 

6. Purchase. 

III. The Strength of Socialism 

1. Emphasis upon a scientific organization of production. 

a. Elimination of the wastes of competition (6) 927-931. 

b. Elimination of the wastes of industrial depressions. 

c. Elimination of unemployment. 

2. Emphasis upon a more equitable distribution of wealth. 



Socialism 125 

IV. The Practical Difficulties Involved in Socialism 
(5) 773-777 

1. Mistaken objections to socialism. 

a. Failure of communistic experiments means the 
failure of socialism. 

b. Socialism contemplates the abolition of all forms of 
private property. 

c. Socialism is identical with anarchism. 

d. Alleged hostility of socialism to religion and the 
family. 

e. Sociahsm contemplates the equality of all men 
(5) 770-772. 

f. The socialistic state would be hampered by a lack 
of the "accumulation of capital" (5) 775-777. 

g. Socialism is the negation of liberty. Distinction 
between positive and negative liberty. Socialism does 
not remove all options. 

2. Some practical difficulties involved in the socialistic 
program. 

a. Difficulty of increasing wealtli production while short- 
ening hours, so as to make possible the greatly in- 
creased incomes described by some sociahsts. 

b. Difficulty of maintaining discipline and efficiency on 
the part of the workers. Fear of unemployment is 
removed. 

c. Difficulty of avoiding the evils of bureaucracy. 
Sociahsm means the substitution of governmental or 
official judgment and initiative for those of the indi- 
vidual. It tends to become bureaucratic. Possible 
bad effects upon originahty, upon the requirements of 
persons engaged in the higher pursuits, and upon the 
distribution of labor forces so that production may be 
harmoniously developed. 

d. Difficulty of determining upon a generally acceptable 
standard of distribution, at once just and sufficiently 
stimulating to evoke the best efforts of all. 

e. Difficulty suggested by Malthusianism (5) 775. 

f. Difficulty of properly providing for obsolescence and 
depreciation and thus maintaining credit. 



126 Elements of Economics 

II — Socialistic Theory — ^Marxian 

I. The Economic Interpretation of History 

II. The Doctrine of the Class Struggle 

III. The Marxian Theory of Value and its Corollaries 

1 . Labor theory of value. 

2. Right of labor to the full product. 

3. Theory of surplus value. 

4. Exploitation theory of interest and profits. 

5. Iron law of wages. 

6. Doctrine of increasing misery. 

7. Theory of crises. 

Ill — The Socialist Movement 
I. Varieties of Socialism 

1. Utopian socialism. 

2. Christian socialism. 

3. Fabian socialism. 

4. State socialism. 

5. Scientific sociahsm (Marxian). 

6. Guild socialism. 

7. Bolshevism. 

II. Some Illustrations of Socialistic Appeals to the Mas- 
ses (5) 757-769. 

III. Development of the Socialist Movement Prior to the 
War 

IV. Present Status of the Socialist Movement 

IV — Other Plans for Social Reconstruction 
I. The Single Tax (2) 563-571. 

II. Communism (2) 531-540. 

III. Anarchism (2) 555-562. 

IV. Syndicalism (6) 616-617. 

f References 

(1) Ely, R. T., Outlines of Economics, Ch. XXX. 

(2) Carver, T. N., Principles of Political Economy, Chs. XLV, 
XLVI, XLVII, XLVIII. 

(4) Marshall, Wright and Field, Materials for the Study of 
Elementary Economics, Sees. 266-267. 

(5) Hamilton, W. H,, Current Economic Problems, Sees. 361- 
375. 

(6) Marshall, L. C, Readings in Industrial Society, Sees. 13, 
244, 245, 353. 



Suggestions Concerning Topics 127 



Suggestions Concerning Topics 
Purpose 

The purpose in the preparation of a topic is to gain familiarity 
with economic hterature, a more intensive knowledge of the given 
economic subject, and training in the organization of thought. 
Students expecting to major in economics may perhaps through 
the preparation of these topics find some field of interest which 
will later furnish a thesis field and subject. 

Reference Material 

1. The card catalogue of books of the University and the 
Historical Libraries. This is arranged by topic, title of 
book and author. 

2. The Readers' Guide to Periodical Literature and the Readers' 
Guide Supplement. Consult the more scientific rather than 
the popular magazines. 

3. The card catalogue of public documents of the library found 
in the document room of the library. 

Method 

1. Prepare a carefully selected bibliography, following this 
model: 

Economic Behavior 

Parker, C. H., "Motives in Economic Life," American 

Economic Review Suppleinent, VIII (1918), 212-231. 

Taussig, F. W., Inventors and Money Makers (1915). 

Thorndike, Edward L., The Original Nature of Man (1913). 

2. Prepare the topic in outline form. Any chapter of this 
Outline may serve as a model for the general form. The 
outhne should be so detailed, however, and contain so many 
complete statements that it amounts to a synopsis. The 
topical outline should reveal the student's organization and 
mastery of thought on the subject. If training in expres- 
sion is desired the outline may be developed into an essay. 

3. Wherever in the topic a quotation is made, or the treatment 
is based substantially upon the work of some other writer, 
appropriate credit should be given in a footnote appearing 



128 Elements of Economics 

at the bottom of the page. The first tune a given work is 
fited, reference to it should be made in full, thus : 

C. H. Parker, "Motives in Economic Life," American 
Economic Review Supplement, VIII (1918), 212. 
A subsequent reference to the same work on the same page 
of the topic may be made thus, providing no other reference 
intervenes: 

Ibid., p. 215. 
A subsequent reference to the same work on some other 
page of the essay may be made thus: 

C. H. Parker, op. dt., p. 220. 



StTGGESTED TOPICS 129 



Suggested Topics 
PART I— THE ECONOMIC STRUGGLE 

1. The Significance of the Industrial Revolution. 

2. The Conditions Favoring the Estabhshment of Capitalism. 

3. The Behavioristic Psychology in Its Application to In- 
dustry. 

4. A Comparison of the Commercial and Industrial Economies. 

5. The Conversion of Economic Opportunity into Economic 
Power. 

6. Sources of Industrial Unrest and Conflict. 

7. The Struggle for the Equalization of Opportunity. 

8. The Equalization of Bargaining Power. 

PART II— PRODUCTION 

9. SpeciaUzation and Inter-Dependence. 

10. The Effects of Machine Industry upon Labor. 

11. The Superior Productivity of the Machine Process. 

12. Nature and Evolution of the Factory System. 

13. Studies in the Localization of Industry. 

14. The Capitahstic Character of Modern Industry. 

15. The Problem of Par Value and No-Par Value Stock. 

16. Overcapitalization in Relation to Consumer and Investor. 

PART III— VALUATION AND DISTRIBUTION 

17. The Influence of Custom in the Determination of Price. 

18. Class Price. 

19. The Relation of Rent to Prices. 

20. Factors in tlie Determination of Urban Rents. 

21. Statistical Studies of Wages in the United States. 

22. The Malthusian Theory of Population Critically Considered. 

23. Justification of Interest as a Reward for Waiting. 

24. The Concept of Profits in Economic Literature. 

25. The Single Tax Program — Its Merits and Demerits. 

26. The Effect of the War upon Wages and Labor Organiza- 
tions in the United States. 

27. The Effect of the War upon the Future Rate of Interest. 



130 Elements op Economics 

PART IV— LABOR IN INDUSTRY 

28. The Labor Problems Raised by the Advent of Women into 
Industry. 

29. The Nature and Functions of the American Federation of 
Labor. 

30. The Relative Merits of the Open and the Closed Shop. 
3L Significance of the Movement for the Open Shop. 

32. The Shorter Working Day. 

33. The Economic and Legal Aspects of Strikes. 

34. The Economic and Legal Aspects of Boycotts. 

35. A Study of the Steel Strike of 1919. 

36. .. The Compulsory Arbitration of Industrial Disputes. 

37. The Canadian Experience with the Industrial Disputes 
Investigation Act. 

38. The Experience of Australasia with Compulsory Arbitra- 
tion. 

39. The Kansas Court of Industrial Relations — A Critical 
Examination of the Plan. 

40. Representative Government in Industry — Exposition and 
' Appraisal. 

41. Trade Agreements. 

42. Trade Agreements as a Means of Preventing Industrial 
Disputes. 

43. A Sketch of the Development of the Employment Manage- 
ment Movement in the United States. 

44. The Ford Profit Sharing Plan. 

45. The Forms of Safety and Health Legislation. 

46. The Case for Compulsory Health Insurance in the United 
States. 

47. Federal Child Labor Legislation. 

48. Minimum Wage Laws in Theory and Practice. 

49. The Failure of Employers' LiabiHty to Provide Adequate 
Compensation for the Injured Employee. 

50. The Organization and Functions of the Wisconsin Industrial 
Commission. 

51. The Nature of the Immigration Problem. 

52. Immigration During and After the War. 

53. The Restriction of Immigration. 

54. The Literacy Test Contrasted with the Percentage Plan for 
Restriction of Immigration. 

55 Social Insurance Against Industrial Accidents. 



Suggested Topics 131 

56. Old Age Pensions vs. Old Age Insurance. 

57. The Causes of and Remedies for Unemployment. 

58. The Feasibility of Compulsory Unemployment Insurance. 

59. The Attitude and Record of the American Federation of 
Labor in the War. 

60. The I. W. W. and the War. 

61. The Work of the National War Labor Board. 

62. Regulation of Hours and Conditions of Labor during the 
War. 

63. The Problems Raised by the Dearth of Unskilled Labor. 

64. The Organization and the Activities of the United States 
Emplojonent Service. 

65. The "Reconstruction" Program of the British Labor Party. 

Part V — Exchange 

66. The Nature and Functions of the Chicago Board of Trade. 

67. The Nature and Functions of the New York Stock Ex- 
change. 

68. Organized Speculation — Prohibition or Regulation? 

» 69. The Effects of the War upon Organized Speculation. 

70. The Services of and Dangers in Assessment Insurance 
Companies. 

71. The Wisconsin Experiment with State Insurance. 

72. Government Insurance of Our Soldiers and Sailors. 

73. The Effect of War Risks upon the Business of Life Insur- 
ance. 

74. Governmental Marine Insurance in Great Britain and the 
United States. 

75. A Critical Estimate of the Government's War Risk Insur- 
ance System. 

76. Crises: Causes and Control. 

77. Crises— Their Causes, and the Federal Reserve System as 
a Means of Control. 

78. The Growth in Federal Control over the Railways. 

79. The Organization and Functions of the Wisconsin Railway 
Commission. 

80. The Organization and Functions of the Interstate Com- 
merce Commission. 

81. Compulsory Investigation in the Settlement of Disputes 
between Railways and their Employees. 

82. Government Ownership of Railways. 

83. How the Federal Government Came to Undertake the Oper- 
ation of Our Railways. 



132 Elements of Economics 

84. Critical Examination of the Esch-Cumrriins Act of 1920 from 
the Point of View of Labor. 

85. Critical Examination of the Esch-Cummins Act of 1 920 from 
the Point of View of the Railway's. 

86. The Cooperative Marketing of Farm Products. 

87. The Need of Agricultural Credit in the United States and 
What the Federal Farm Loan Act Does to Meet It. 

88. -The Experience of Federal Farm Loan Banks. 

89. The Operation of the Federal Reserve Banking System. 

90. War Time Services of the Federal Reserve Banking System. 

91. Price Changes: Causes and Remedies. 

92. A Study of Changes in Prices in 1920. 

93. The War and the Causes of the Recent Rise in the Price of 
Silver Together with a Discussion as to the Wisdom of 
Recent Silver Legislation. 

94. Causes of the High Cost of Living. 

95. The Effect of Circulating Credit upon Prices and the Social 
Welfare. 

96. Critical Examination of the Proposal to Stabihze the 
Dollar. 

97. An Examination of the Foreign Exchange Situation, 1914- 
1921. 

98. Present-Day Use and Importance of "Trade" and "Bank- 
ers" Acceptances. 

99. The Explanation of Normal Foreign Exchange Rates Prior 
to 1914. 

100. Explanation of Foreign Excliange Rates in 1921. 

Part VI — Consumption 

101. The Economic Necessity of Saving and the Ways of Accom- 
phshing It. 

Part VII — Public Finance 

102. Unearned Increment Taxation. 

103. The Shifting and Incidence of Various Forms of Taxes. 

104. The Principles and History of Inheritance Taxation. 

105. The Principles and History of Income Taxation. 

106. The General Property Tax — Its Faults and Their Remedy. 

107. The Merits of Financing the War Partly with Taxes and 
Partly with Bonds. 

108. The Justification and the Provisions of the Excess Profits 
Tax. 



Suggested Topics 133 

109. Changes in our Federal Income Tax Law as a Result of 
the War. 

110. Long Time National Debt vs. Early Retirement of Bonds. 

111. National Economy and a Federal Budget System. 

Part VIII — Economic Policies 

112. Historical and Conservation Aspects of the Land Policy 
of the United States. 

113. The Laissez-Faire Policy in American Economic Life. 

114. Manifestations of the Policy of Government Regulation. 

115. Historical Varieties of Socialism. 

116. SociaHsm, as a Body of Doctrine. 

117. Socialism, as a PoUtical Movement. 

118. Socialism, a Possible Economic Organization of Societ3^ 

119. The Socialistic Doctrine of the Class Struggle. 

120. The Strength and Services of Socialism. 

121. The Practical Difficulties Involved in Socialism. 

122. The Influence of the War upon the Government's Prosecu- 
tion of Industrial Combinations. 

123. Govermnental Fixation of Prices. 

124. Is an International Boycott of Germany after the War 
Feasible and Desirable? 

125. How to Develop Trade with Latin America. 

126. The Webb-Pomerene Act in Relation to Foreign Trade. 

127. The Edge Act and the Financing of Foreign Trade. 

128. The Needs and Future of American Shipping. 

129. The War Work of the Tariff Commission. 

130. The Work of the Food Administration. 

131. The Work of the Fuel Administration. 

132. The Extent and Success of Government Reguktion in War 
Time. 

133. The Effects of the War upon the Socialist Movement in 
the United States. 



134 Elements of Economics 



List of References 

Since the textbooks in economics all contain extensive classified 
bibliographies, no attempt is made here to duplicate them. The 
following abbreviated list of references is included for the conven- 
ience of the student in knowing what edition is meant in the page 
references made in the text of the Outline. 

Carlton, F. T., History and Problems of Organized Labor 
(Boston: D. C. Heath & Co., 1911) 

Carver, T. N., Principles of Political Economy (Boston: 
Ginn & Co., 1919) 

Clay, Henry, Economics for the General Reader (Am. ed.; 
New York: The Macmillan Co., 1918) 

Commons, J. R., Labor and Administration (New York: 
The Macmillan Co., 1913) 

Commons, J. R., & Andrews, J. B., Principles of Labor Legis- 
lation (New York: Harper & Bros., 1916) 

Commons, J. R., and Associates, Industrial Government (New 
York: The Macmillan Co., 1921) 

Dewing, A. S., Financial Policy of Corporations (New York: 
Ronald Press, 1920) 

Ellwood, C. A., An Introduction to Social Psychology (New 
York: D. Appleton & Co., 1917) 

Escher, Franklin, Foreign Exchange Explained (New York: 
The Macmillan Co., 1917) 

Ely, R. T., Outlines of Economics (3d ed.; New York: The 
Macmillan Co., 1916) 

Fetter, F. A., Modern Economic Problems (New York: The 
Century Co., 1916) 

Gephart, W. F., Principles of Insurance (New York: The 
Macmillan Co., 1913) 

Gide, Charles, Political Economy (Boston: D. C. Heath and 
Co., 1913) 

Groat, G. G., Organized Labor in America (New York: The 
Macmillan Co., 1916) 



List of Refkrences 135 

Hamilton, W. H., Current Economic Problems (Chicago: The 
University of Chicago Press, 1915) 

Hobson, J. A., Evolution of Modern Capitalism (Rev. ed.; 
New York: Charles Scribner's Sons, 1906) 

Hoxie, R. F., Trade Unionism in the United States (New York: 
D. Appleton & Co., 1917) - 

James, WiUiam, Principles of Psychology (New York: Henry 
Holt & Co., 1890). 

Johnson, E. R., & Van Metre, T. W., Principles of Railroad 
Transportation (New York: D. Appleton & Co., 1916) 

King, W. I., Elements of Statistical Method (New York: The 
Macmillan Co., 1912) 

Lyon, Hastings, Corporation Finance 

McDougall, William, An Introduction to Social Psychology 
(Boston: John W. Luce & Co., 1912) 

Marshall, Alfred, Principles of Economics (London: Macmillan 
and Co., 1916) 

Marshall, L. C, Readings in Industrial Society (Chicago: 
The University of Chicago Press, 1918) 

Marshall, Wright and Field, Materials for the Study of Elemen- 
tary Economics (Chicago: The LTniversity of Chicago Press, 
1915) 

Mitchell, W. C, Busiriess Cycles (Berkeley: University of 
California Press, 1913) 

Secrist, Horace, An Introduction to Statistical Methods (New 
York: The Macmillan Co., 1917) 

Tead, Ordway, Instincts in Industry (New York: Houghton 
Mifflin Co., 1918) 

Thorndike, E. L., The Original Nature of Man (New York: 
Teachers' College, Columbia University, 1913) 



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